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Fed likely to hold rates in July as inflation and energy shocks loom

BNY strategists see at least one hike priced for September and say upcoming CPI and PCE data before September 16 could be decisive, with Middle East-linked energy swings influencing inflation expectations.

Reported · Written up by our desk · Central Banks

BNY strategists John Velis and David Tam expect the Federal Reserve to keep the federal funds rate unchanged at the upcoming July FOMC meeting, calling the decision finely balanced.

They point to market pricing for at least one hike by September, with September implied hikes at nearly three-in-four and combined July and September pricing suggesting the Fed will hike at least once before then.

Looking ahead, the strategists say the timing and path of policy will likely depend on incoming US inflation data, including two CPI releases and two PCE deflators scheduled before September 16.

They also expect renewed Middle East hostilities to push higher energy-related inflation components and potentially affect measures like transportation linked to supply chain shocks, while seeing relief in other, non-energy categories.

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