The Federal Reserve's Federal Open Market Committee (FOMC) is meeting for two days, with a decision expected on Wednesday, July 29, at 2:00 PM ET. The market widely anticipates the Fed will maintain the federal funds rate in its current target range of 3.5% to 3.75%. This would mark the fifth consecutive meeting without a rate change. CME FedWatch data indicates a 65% probability of no change, with odds of a September rate hike climbing to approximately 82%.
While a rate hike is not expected at this meeting, the market will closely scrutinize the Fed's statement and Chairman Kevin Warsh's press conference for signals regarding future monetary policy. Analysts suggest that a "hawkish hold"—keeping rates steady but using strong language about inflation—could have the same impact as a rate hike on mortgages, CDs, and bonds. The 10-year Treasury yield is currently at 4.70%, its highest point, and the two-year Treasury yield, which tracks Fed policy expectations, has risen to over 4.32%.
Inflation remains a key concern, with the Fed having missed its 2% target for 64 months. The Cleveland Fed Inflation Nowcasting Model projects the July headline inflation rate to ease to 3.4% and core inflation to slow to 2.5%, but the Fed's preferred measures, the headline and core personal consumption expenditures price indexes, are still expected to remain above 3% in July. The recent implementation of a two-tier Section 301 tariff regime (10% to 12.5% covering about 60 economies) after the expiration of Section 122 measures on July 24, introduces a new factor that traders will be watching for its potential impact on prices.
Chairman Warsh, in his second meeting, has altered the statement language and is known for being reluctant to offer forward guidance. Policymakers are expected to emphasize a data-dependent approach for future decisions. In his previous congressional appearance, Warsh stated the Fed would have "no tolerance" for elevated inflation. Though Warsh will likely face questions about the Middle East conflict's inflationary effects, he is expected to reiterate that all options remain open.
