Ahead of tomorrow's Federal Reserve interest rate decision at 21:00 (14:00 Eastern Time), market expectations are intensifying that the rate will remain unchanged, but this forecast, like previous ones, is far from certain. Market forecasts estimate the probability that the Fed will not change rates at its July meeting at approximately 80%, with a 19% probability of a 25 basis point increase.
The Federal Reserve, ahead of its second monetary policy meeting under the leadership of Chairman Kevin Warsh, is keeping its benchmark interest rate stable at 3.50–3.75 percent since December. Recent increases in energy prices and hawkish statements from some Fed representatives have raised the probability of an interest rate hike in futures markets.
However, lower-than-expected inflation data and the renewed lull in military actions between the U.S. and Iran suggest that the threshold for the Fed raising interest rates this week may be higher than what markets are predicting.
Economists note that if the Fed raises interest rates after a long period of waiting, it will not be viewed as a one-time action. Historically, when the Fed begins a cycle of raising or lowering interest rates, it typically continues moving in the same direction over several meetings.
Thus, a potential rate hike could be perceived by investors as a strong signal that further increases may follow in future meetings. However, it is believed that Fed representatives are not yet ready for a series of such interest rate hikes.
James Bullard, former president of the Federal Reserve Bank of St. Louis and dean of the Mitch Daniels School of Business at Purdue University, also stated that the Fed typically does not make one-time changes to interest rates. Bullard noted that the monetary policy board must decide whether it is ready to begin a series of rate hikes, adding: "I don't think they are ready to do that at this meeting."
*This is not investment advice.
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