Simon Moore

The Federal Open Market Committee meets July 28-29 under Chair Kevin Warsh, with markets seeing a one-in-three chance of a July rate hike. This comes as energy prices rise and Fed officials strongly commit to fighting inflation. Governor Lisa Cook highlighted inflation at 3.7%, well above the 2% target, while Vice Chair Philip Jefferson and Governor Christopher Waller warned of policy reconsideration if inflation doesn't cool. Though the Fed's move away from forward guidance creates uncertainty, markets broadly expect higher interest rates in 2026, likely two hikes, possibly starting in September or October. However, continued increases in energy prices could prompt earlier action.

Donald Trump's Federal Reserve nominee, Kevin Warsh, is signaling potential interest rate hikes as inflation remains above target, a move that could strain his currently amicable relationship with Trump. Markets anticipate two rate increases this year, driven by rising energy costs and supply constraints, a similar dynamic previously led to public criticism and legal attacks from Trump against former Fed Chair Jerome Powell. The Fed's independence faces heightened scrutiny, with Warsh himself questioning its earned autonomy. Recent 2026 Supreme Court rulings, including *Trump v. Slaughter* and the narrowly decided *Trump v. Cook*, have created a fragile legal consensus on presidential power over the Fed, potentially setting the stage for further challenges to its autonomy if rates indeed rise.

Despite the Federal Open Market Committee holding interest rates steady in July, markets now anticipate a September hike is more probable. Several indicators point to this shift, including a sharp rise in 10-year bond yields to nearly 4.7% and recent hawkish speeches from Fed officials. The July meeting also saw three dissents from policymakers who favored an immediate rate increase, signaling growing support for tighter policy. Elevated energy prices, fueled by the Iran conflict, continue to drive inflation, a key concern for Fed Chair Kevin Warsh who stresses the need for lower inflation. A robust U.S. economy further removes barriers to a more hawkish stance, making a September rate increase the most likely scenario according to market expectations, unless economic data fundamentally changes.

The Future Bites (Limited Edition Box Set). Simon Moore, Steven Wilson

The U.S. economy unexpectedly lost 23,000 jobs in July, ending a four-month growth streak and complicating the Federal Open Market Committee's interest rate decisions. While healthcare job creation slowed, other sectors saw losses, potentially signaling a return to a volatile job market. Despite this, financial markets still anticipate one or two interest rate increases by year-end, though the probability of a September hike has decreased. Fed Chair Warsh remains focused on lowering inflation, and some FOMC members advocate for higher rates. Meanwhile, the Trump administration is reportedly attempting to fire Fed Governor Lisa Cook, which could undermine the Fed's independence and influence future rate policy. A sustained weak job market, coupled with high inflation, presents a challenging path for the FOMC.

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A September interest rate hike is the most likely outcome according to markets, but much hangs on the upcoming CPI report.