US Federal Reserve expected to hold rates steady as inflation swirls

Most investors expect the Fed to hold rates steady at 3.5 per cent to 3.75 per cent for the fifth straight meeting, according to CME’s FedWatch monitoring tool.

WASHINGTON – The US Federal Reserve is set to hold its second meeting under new chairman Kevin Warsh starting July 28, with markets expecting policymakers to keep interest rates steady amid inflation concerns that could be exacerbated by US President Donald Trump’s renewed war on Iran.

Warsh was chosen to lead the US central bank by Trump, who has made his demand for lower interest rates clear as he has exerted unprecedented pressure on the independent monetary policymaking body.

After two days of closed-door sessions, the Federal Open Market Committee (FOMC) will announce its decision on July 29 at 2pm (2am on July 30, Singapore time), followed by a press conference by Warsh.

Most investors expect the Fed to hold rates steady at 3.5 per cent to 3.75 per cent for the fifth straight meeting, according to CME’s FedWatch monitoring tool.

US consumer inflation eased to 3.5 per cent year on year in June, but remains far higher than the Fed’s long-term 2 per cent target, which it has not achieved for more than five years.

Since last week, a ramping up of hostilities has seen intense US strikes and Tehran’s retaliatory action targeting Washington’s allies across the region, while Yemen’s Houthi rebels have threatened to blockade the Red Sea oil trading route.

The fighting has sent energy prices soaring once more, with the benchmark oil futures contract breaching US$100 per barrel for the first time since late May, when energy prices were on their way down.

At the Fed, policymakers have been losing patience with persistent inflation, indicating that a rate hike may be near.

The Fed “has to be ready to tighten monetary policy to prevent a repeat of the 2021-to-2022 inflation episode”, Fed Governor Chris Waller said last week.

“Sternly staring at inflation until it melts before our withering gaze is not an option.”

Since taking office, Warsh has vowed to reduce or eliminate the amount of forward guidance the Fed provides on its decision-making process, a move that has received mixed reactions.