Fed Holds, But Uncertainty May Make a Hike Inevitable | Presented by CME Group

Summary

The Fed held rates at 3.5-3.75% with three dissents favoring a hike. Markets see a 70% probability of a September rate increase. The Fed will evaluate upcoming PCE and labor data amid inflation pressures from Middle East supply shocks.

• FOMC left rates unchanged at 3.5-3.75% in a 9-3 vote, the fifth consecutive hold.
• Three dissenting voters preferred a quarter-point hike.
• CME FedWatch tool prices a 70% chance of a quarter-point hike at the September 16th meeting.
• Chair noted higher nominal and real yields across the Treasury curve are giving the Fed time to assess their impact on inflation.
• Middle East conflict uncertainty is producing supply shocks that keep inflation elevated.
• Productivity growth and capital investment remain strong.
• The Fed will focus on pending PCE inflation data and upcoming labor market reports.
• Internal disagreement exists over how quickly to address above-target inflation despite solid economic activity.