Fed's July Meeting Shapes Up as One of the Hardest to Call in Years

With Chair Kevin Warsh declining to offer guidance, investors are increasingly forced to infer the Federal Reserve's next move from other officials' remarks. A renewed climb in oil prices, alongside rising tariff-related uncertainty, has revived inflation fears and made the Fed's outlook on additional tightening less clear. On July 23 local time, "Fed whisperer" Nick Timiraos wrote that the Fed's July policy meeting could be among the most difficult to predict in recent years. Higher energy prices, greater risks from U.S. tariff policy, and a visible shift among some officials toward supporting rate hikes are testing the prevailing view that the Fed will simply stand pat. Markets still largely expect the Federal Open Market Committee (FOMC) to hold the policy rate steady at its July 28–29 meeting, keeping the target range at 3.50% to 3.75%. Even if rates are left unchanged, internal debate is far from settled, and some policymakers are already signaling a case for another hike later this year. At the prior meeting, 18 Fed officials showed clear divisions over whether additional hikes are needed this year, splitting roughly evenly between those anticipating at least one increase and those expecting no change. UBS Chief U.S. Economist Jonathan Pingle said Warsh could become the pivotal figure in determining the policy path. Inflation concerns are flaring again, giving hawks fresh ammunition. The rebound in energy prices has become a key input for the Fed's assessment. As Middle East tensions intensified, rising oil prices pushed traders to raise the odds of a July hike. CME Group data showed that as of last Wednesday, markets were pricing roughly a one-third chance of a rate increase at the July meeting, up from about one in ten over the weekend. William English, a Yale University economist and former senior Fed economist, said the case can be made both for hiking and for holding steady, with the decision hinging on whether the situation in Iran cools and where oil prices head next. He warned that if conflict drives energy costs higher, the Fed could end up reacting after the fact if it fails to act preemptively. Officials leaning toward another hike argue that the 3.50% to 3.75% range may not be restrictive enough to bring inflation fully under control. While inflation has eased from its peak, they contend underlying pressures remain. Fed Governor Christopher Waller said policymakers cannot simply wait for inflation to drift down on its own, adding that stable expectations do not justify ignoring emerging risks. Dallas Fed President Lorie Logan also said a "moderately restrictive" stance now may be preferable to being forced into more aggressive tightening later. Recent work from JPMorgan Chase and Goldman Sachs has reinforced the concern, voiced by Waller and others, that inflation pressures are no longer limited to energy or tariffs and appear to be broadening. Goldman Sachs economist Jessica Rindels estimated that as of June, nearly 60% of categories in the Personal Consumption Expenditures (PCE) index were posting annual price increases above 3%. That share is below the nearly 80% seen during the COVID-19 pandemic but well above the 37% average from 1990 to 2019, a period when inflation tended to stay near the Fed's target. "People are increasingly frustrated with inflation," said Dario Perkins, Managing Director of Global Macro at TS Lombard. "After six consecutive years of overshooting the target, confidence is being seriously questioned. The Fed's reasonable excuses no longer hold—any further mistakes will no longer be tolerated." Some officials are also watching demand growth linked to AI investment. Building AI infrastructure is lifting capital spending and raising costs across connected sectors. Investors argue that if demand continues to outstrip supply, inflation pressures could intensify, though improving data has supported a wait-and-see approach and some policymakers believe the impact may fade. Those favoring a pause say recent data do not warrant immediate tightening. June inflation readings were relatively mild, with energy prices falling and core pressures easing, while the labor market showed no clear signs of overheating. Point72 Asset Management Chief Economist Dean Maki said the information the Fed received after its June meeting looked better than what it had beforehand, making it hard to justify an immediate hike after opting to hold steady in the face of improved data. Advocates of patience argue that this year's inflation rebound largely reflects temporary shocks such as tariffs and energy, and that monetary policy typically requires waiting to see whether such pressures persist before adjusting rates. New York Fed President John Williams previously said there are signs inflation may have peaked and could ease over coming quarters. Oil's latest rise and U.S. President Trump's preparations for additional tariffs have reintroduced uncertainty around that disinflation path. Still, several observers, including Rindels, have suggested the breadth of price pressures could narrow by year-end, making upcoming inflation reports especially consequential as Warsh's no-guidance approach collides with fresh data and colleagues' reactions. Warsh's reluctance to signal his preference has left markets searching for clues elsewhere. Since taking office, he has repeatedly stressed the need to restore price stability and avoid suggesting the Fed is willing to tolerate inflation above target. He has not said clearly whether current rates are sufficient to achieve that goal, nor whether he supports further hikes. Waller's earlier hawkish comments initially lifted market expectations for a July increase, but subsequent remarks from Williams and Fed Vice Chair Philip Jefferson helped reinforce the view that rates will remain unchanged. Warsh, Williams, and Jefferson are viewed as the core policy-coordination group. Under Jerome Powell, that group typically arrived at a consensus before meetings, while Warsh has sought to preserve more room for internal debate. Investors remain split on Warsh's policy leanings. Some believe that despite pressure from Trump to cut rates, he will prioritize credibility on inflation control. Others think he may prefer to wait for AI-driven productivity gains to cool prices without rushing to tighten. Fed Board member Lisa Cook said AI development is still advancing. While markets previously feared AI could disrupt employment, the most severe effects have not materialized, she said, while also noting that persistently high inflation continues to squeeze U.S. households. As the July meeting nears, the Fed must weigh renewed inflation risks, incoming data, and internal divisions. How Warsh ultimately chooses will shape whether the meeting is simply another pause or an early marker of a shift in the Fed's policy direction. Morgan Stanley Chief U.S. Economist Michael Gapen said, "I don't believe he can remain untouched forever."