Fed Set to Hold Rates as Tariffs, Iran Conflict Fuel Inflation

Borrowing costs for homes, cars and business equipment remain elevated while inflation has stayed above the Federal Reserve’s 2 percent target for more than five years. The FOMC is widely expected to leave its federal funds rate unchanged at its current level near 3.6 percent when it announces its decision at 2 p.m. ET on Wednesday. Markets assign roughly a two-thirds probability to no change, according to CME Group data cited by multiple outlets.

The central tension is whether persistent price pressures from new tariffs and the conflict with Iran will force an earlier hike. Dallas Fed President Lorie Logan has called for rates to be “modestly” higher. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Governor Christopher Waller have also signaled openness to tighter policy if inflation fails to recede. Former Governor Stephen Miran, however, described the recent inflation as transitory and urged the committee to stay on hold.

Chairman Kevin Warsh, who assumed the role in May, has reduced forward guidance compared with his predecessor. That shift has prompted other officials to speak more directly, according to economist Greg Daco of EY-Parthenon. No Summary of Economic Projections will accompany this decision, and Warsh’s news conference at 2:30 p.m. ET is expected to offer limited new signals.

Recent data showed a 0.4 percent drop in the consumer price index in June when gasoline prices fell, yet those prices have since rebounded. Analysts at Natixis and Edward Jones note that housing costs are cooling and that wage growth adjusted for productivity is not adding broad pressure. Still, energy and wholesale prices remain elevated.

Traders price in a 90 percent chance that the federal funds rate will be at least 0.25 percentage point higher by January, per CME futures. The committee next meets in September. Any dissent at Wednesday’s vote would mark the first public split under Warsh.