As the Federal Reserve prepares to release its latest rate decision, a group of economists has openly argued that Chair Kevin Warsh should raise rates at this meeting. Their view is that the Fed’s run of rate cuts in 2025 was too aggressive and left policy out of balance even though inflation is still above target.
The decision is scheduled for 2 a.m. Taipei time on July 30, with Warsh set to hold a press conference at 2:30 a.m.
Lavorgna says the Fed should reverse part of last year’s easing
Joe Lavorgna, chief economist for the Americas at SMBC Nikko Securities, said on CNBC that the Fed should take back part of last year’s rate cuts. He said the labor market has stabilized and no longer justifies keeping policy loose.
Lavorgna pointed to the Fed’s preferred inflation gauge, core PCE, and said it has remained more than 1 percentage point above the 2% target for several years. In his argument, that is the first pillar supporting a rate hike.
He also said the only part of the economy that still looks restrictive is housing, but real estate accounts for only about 3% of the broader economy and cannot stand in for overall conditions.
Lavorgna added that the real issue is a rising neutral rate. At the same time, AI-related capital spending is increasing credit demand, which in his view means current rates are not as restrictive as policymakers think.
Logan also backed a more hawkish stance
This line of thinking is not limited to Lavorgna. Dallas Federal Reserve Bank President Lorie Logan, a voting member of the Federal Open Market Committee, said last week that “a modest increase in rates would better balance the economic outlook,” aligning her position with his.
Markets still lean toward no move
Even so, the case for a hike remains a minority view in the market. CME FedWatch data showed traders were pricing in about a 38% chance of a rate increase, below an even split.
Most economists still expect the Fed to stay on hold. A FactSet survey showed broad expectations for rates to remain in the 3.5% to 3.75% range.
CNBC listed three reasons Warsh may stay put
CNBC said there are three reasons Warsh could keep rates unchanged this week: a hike does not fit his broader policy strategy, it could draw dissatisfaction from Trump, and it could weaken the work of the Fed reform task force that he has led himself.
The report also said Warsh has sharply pulled back the Fed’s usual forward guidance since taking office, leaving markets with fewer pre-meeting signals than before any recent decision.
Warsh has even said the meeting could produce open dissent. If the Fed does raise rates, it would not only validate that warning but also become the most significant test of his tenure so far.