Federal Reserve Chairman Kevin Warsh is scheduled to testify before Congress today, July 14, and again on July 15. This testimony comes as traders are increasingly betting on a rate hike this month, with the implied probability of a quarter-point increase reaching approximately 50%. This surge in expectations is a significant jump from under 10% just weeks prior. The actual decision on rates will be made at the Fed's July 29 meeting. Throughout his testimony, Warsh is expected to avoid specific forward guidance on monetary policy, instead focusing on Fed independence and underlying inflation drivers, in line with his established reputation since taking office in May.
The heightened expectations for a July rate hike are largely attributed to recent inflation data and hawkish comments from Federal Reserve Governor Christopher Waller. Waller indicated that policymakers might need to raise rates if underlying inflation continues to show broad price pressures. This sentiment was further amplified by a renewed increase in oil prices following fresh U.S. strikes on Iran, leading to a jump in Brent crude by as much as 9.9% in a single day. The geopolitical tensions have prompted the U.S. to announce a blockade of Iranian ships, contributing to concerns about global energy prices.
Money-market pricing shifted significantly after Waller's statements and the geopolitical developments. Two-year Treasury yields, which are highly sensitive to Fed policy expectations, rose by seven basis points to 4.28%, marking their highest level since February 2025. Similarly, the five-year rate reached 4.37%, and the benchmark 10-year yield climbed six basis points to 4.62%, its highest since May. These movements reflect growing investor sentiment that the Fed will act sooner to control inflation pressures emanating from both energy costs and a resilient U.S. economy, making Tuesday's Consumer Price Index (CPI) report a critical data point for market volatility.
