Warsh's Rate Hike Gamble: Will Fed Chief Surprise Markets with July Decision?

The US Federal Reserve's two-day policy meeting on Wednesday (Jul 29) may bring a surprise interest rate hike, despite many analysts and economists expecting it to happen in September. Fed chairman Kevin Warsh has the potential to go either way, with oil futures shooting up to test the $100-per-barrel mark due to the US-Iran war.

This could lead to a range of between 3.75 per cent and 4 per cent for interest rates, from the current level of between 3.5 per cent and 3.75 per cent. Analysts point out that the price of oil feeds into prices of most consumer goods due to links with freight and raw-material costs.

Economists at Bank of America (BofA) Global Research think Warsh will stay on hold, but acknowledge it's a close call. They note that not raising rates this week could cause bond markets to question the Fed's credibility, while a hike could confuse markets due to Warsh's previous arguments about 'looking through' supply shocks.

The recent wild swings in stocks, particularly in semiconductor stocks, have stoked concerns about market stability. This has led some to speculate that Warsh may take a more hawkish stance to discourage investors from further inflating an artificial-intelligence bubble.