Bar to Fed rate hike this week remains high even as markets see a chance
SPY•Why policymakers may wait
The bar for a rate hike this week is likely higher than rate futures suggest, Reuters said, not only because of cooler-than-expected inflation data and another lull in hostilities between the U.S. and Iran, but also because markets would likely read a single increase as a signal that more moves are coming.
Going into the July 28-29 policy meeting, the Fed had left its benchmark policy rate unchanged in the 3.50%-3.75% range since December. Historically, once the Fed hikes after an extended pause, it tends to keep moving in the same direction for several meetings.
"They don't usually do a one-and-done," said James Bullard, the former St. Louis Fed president. "I don't think they're ready to do that at this meeting."
Markets price a chance of a Wednesday hike
Markets are pricing about a 65% chance that the Federal Reserve leaves rates unchanged on Wednesday, but some investors still see a hike as possible.
The Federal Reserve is set to announce its policy decision at 2 p.m. EDT (1800 GMT) on Wednesday, at the end of a two-day meeting. One or more policymakers are expected to dissent, and many analysts think a rate hike is more likely in September than this week.
Inflation, jobs and the case for a sequence of hikes
At the Fed's June 16-17 meeting, all 18 of Chairman Kevin Warsh's colleagues backed leaving rates unchanged, though a few already saw the case for a hike.
Since then, the hawkish case has lost some steam. Consumer prices rose 3.5% in June from a year earlier, down from 4.2% in May, while core CPI eased to from . The labor market has remained solid, with June nonfarm payrolls up and unemployment at .
