Fed rate decision in July leaves investors guessing as Warsh stays quiet
Markets see a one-in-three chance of a July hike as Fed Chair Kevin Warsh lets committee uncertainty build before Wednesday’s call.
By Sal Moretti · Money Reporter
3 min read
The Fed rate decision July meeting has Wall Street unusually unsure: MarketWatch reported that traders see about a one-in-three chance of an interest-rate increase, while most investors still expect the Federal Reserve to wait until September.
The fog is part of the point under new Fed Chair Kevin Warsh, according to Narayana Kocherlakota, the former Minneapolis Fed president who now teaches economics at the University of Rochester. Kocherlakota told MarketWatch that market prices are already showing the effect of Warsh’s leadership style, with investors less able to predict the central bank’s next move.
Fed officials meet Tuesday and Wednesday. The decision statement is due at 2 p.m. Eastern on Wednesday, followed by Warsh’s press conference at 2:30 p.m.
Will the Fed raise rates in July?
No one outside the room appears to know. Jim Bianco, president and macro strategist at Bianco Research, told MarketWatch that investors now need to count votes across the Federal Open Market Committee rather than assume the chair will steer the outcome.
Bianco said he currently sees five votes for a hike, short of the seven needed. If Warsh sides with a hike, Bianco said the final vote could swing heavily in that direction.
The stakes are high because inflation has run above the Fed’s 2% target for more than five years, MarketWatch reported. The Iran war has also pushed prices higher in the first half of the year, and renewed fighting may complicate earlier hopes that a ceasefire would ease oil-price pressure later in the year.
Who wants the Fed to hike rates?
Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack have publicly argued for the central bank to consider raising rates, according to MarketWatch. New York Fed President John Williams is among officials who believe the Fed can wait and watch the inflation data.
Neil Dutta, head of economic research at Renaissance Macro Research, told Bloomberg Television that the officials favoring a hike have strong conviction and could persuade undecided colleagues. Economists cited by MarketWatch also expect some officials to dissent if the committee holds rates steady.
Derek Tang, co-founder of LH Meyer/Monetary Policy Analytics, told MarketWatch that Warsh’s first meeting as chair in June produced no dissents because officials gave him an early grace period. That calm is not expected to hold.
Why is Warsh so hard to read?
Warsh has not clearly laid out his thinking on inflation or the path of rates ahead of this meeting, according to MarketWatch. Gregory Daco, chief economist at EY-Parthenon, told Bloomberg that Warsh’s congressional testimony this month offered little guidance on key questions investors care about, including the inflation outlook and whether artificial-intelligence investment could add short-term price pressure.
Some economists still expect the Fed to stay on hold all year, MarketWatch reported, noting that Warsh appeared more open to rate cuts while seeking the chairmanship. The White House has also pushed for cuts for months.
President Donald Trump, in a Fox Business Network interview cited by MarketWatch, acknowledged that Warsh is only one vote on the committee and has a board around him. Tim Duy, chief U.S. economist at SGH Macro Advisors, told MarketWatch that the comment could make Warsh appear less powerful.
Kocherlakota said Fed chairs do not automatically command support from the board and must persuade colleagues on the economic case. He added that cooler June consumer-inflation data gives the Fed room to wait in July, though he believes hikes may be needed over the next several meetings to protect the central bank’s independence from the White House.
This story draws on original reporting from MarketWatch.