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Warsh’s Hawkish Hike Signals More Increases, Yet 36-Year History Suggests Stocks May Rise
20 days ago•Source: Yahoo Finance
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21.975 min•20 days ago
Fed Signals More Rate Hikes as Inflation Remains Sticky
The Federal Reserve raised its policy rate to 3.75%–4% and left the door open to further hikes as inflation stays above the 2% target and energy prices stay elevated. Kansas City Fed President Jeff Schmid says inflation requires a broader assessment beyond energy, and Fed Chair Warsh echoed the cautious stance. Median projections show most policymakers expect at least one more hike this year (12 see one more, 4 foresee two), with some officials signaling hold next year. Economists warn that both demand-driven overheating and persistent supply shocks could complicate bringing inflation down.
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Fed keeps rates steady as three officials push for hike
The Federal Reserve held its policy rate at 3.5%–3.75% for the fifth straight meeting amid rising oil prices tied to Middle East tensions, with three policymakers—Neel Kashkari, Lorie Logan and Beth Hammack—dissenting in favor of a 25-basis-point increase. Officials maintained a commitment to price stability, noting inflation remains elevated even as core inflation cooled modestly (around 2.6% in June). The dissent signals the risk that a rate hike could reemerge if energy-driven price pressures persist.
Fed holds rates as three policymakers push for a hike amid energy-price pressure
The Federal Reserve left its policy rate at 3.5%–3.75% at the latest meeting, marking a fifth straight hold, even as three officials—Neel Kashkari, Lorie Logan, and Beth Hammack—dissented in favor of a 25‑basis‑point increase. The decision kept the statement largely intact, noting inflation remains elevated due to energy shocks from Middle East tensions; June core inflation came in around 2.6%, suggesting inflation is easing but not yet on a firm path to the 2% target. Fed Chair Warsh reaffirmed the commitment to price stability while acknowledging policy challenges from supply shocks and energy prices.,
Fed Seen Holding Rates—But Hike Isn’t Off the Table
With inflation cooling only modestly and oil prices rising on Middle East tensions, the Federal Reserve is expected to hold rates at its upcoming meeting, though a 25-basis-point hike remains possible this year. Futures assign roughly a 37% chance of a move, reflecting a split among officials: some, like Loretta Mester and Lorie Logan, favor holding unless inflation proves stickier, while others including Kevin Warsh signal a potential move if inflation stays above target. The decision will hinge on inflation trends versus energy-cost volatility and how trading markets price in the risk of higher rates.
Warsh’s Fed debut: markets watch independence and easing-bias cues
All eyes will be on Kevin Warsh as he presides over his first FOMC meeting, with markets broadly penciling in a hold on rates at 3.5%–3.75% and futures not pricing a move until 2027. The key is whether Warsh signals continued independence and removes the last “easing bias,” especially as inflation risks mount. A dismissal of inflation risk or a renewed easing bias could raise concerns about political influence, given Trump’s push for lower rates, while clear independence and restraint would support a stable trajectory for inflation expectations.