President Donald Trump’s effort to push for lower interest rates is running into fresh resistance, with Wall Street analysts widely expecting the Federal Reserve to leave rates unchanged at this week’s Federal Open Market Committee meeting and some seeing room for a hike instead, according to BlockBeats.
The FOMC is scheduled to meet on Tuesday and Wednesday this week to assess progress on the labor market and the central bank’s inflation objective. U.S. inflation is currently running at about 3.5%. That is lower than the level seen from May to June, but it remains well above the Fed’s 2% target.
Energy prices remain a key inflation driver
The report said rising energy costs are still one of the main forces behind inflation. Fuel prices are up 15.7% from a year earlier. They fell 4.9% during the May-to-June period, but prices remain elevated as the Middle East conflict continues to affect global oil supply.
Wall Street views the Trump administration’s military and diplomatic moves in the Middle East as a factor limiting the Fed’s room to cut rates. With no formal ceasefire agreement yet reached between the United States and Iran, uncertainty over control of the Strait of Hormuz continues to hang over the market, leaving oil and inflation risks unresolved.
Bank of America sees a difficult choice for Kevin Warsh
Aditya Bhave, chief U.S. economist at Bank of America, said the market has already priced in about 10 basis points of tightening for July. He said Fed Chair Kevin Warsh faces a difficult decision. If the Fed does not raise rates, that could hurt its credibility in fighting inflation. If it does raise rates, the move could conflict with the policy framework that had favored watching how supply shocks feed through the economy.
Bank of America expects the Fed to hold rates steady in July, but it still forecasts 25-basis-point increases in September, October, and December this year. Markets are also watching how independent Warsh will be after taking office. Analysts said that if the Fed avoids a necessary rate increase because of political pressure, that could also damage its credibility.
FedWatch points to a hold as the base case
Data from CME’s FedWatch tool show that about 68.5% of rate traders expect the Fed to leave rates unchanged this week. The rest of the market is pricing in a 25-basis-point increase, which would take the target range to 3.75% to 4%.