The Federal Reserve wraps up its two-day July meeting on Wednesday, July 29, with traders split on whether Kevin Warsh’s second decision as chair brings a hold or a hike. Cooling June inflation argues for standing still, while oil prices lifted by a collapsed U.S.-Iran ceasefire argue the other way. Crypto markets have already turned defensive.
Traders assign a 70.6% probability to the Fed holding rates in the 350 to 375 basis point range, against a 29.4% probability of a 25 basis point hike, according to CME Group’s FedWatch tool. That split makes Warsh’s second meeting as Federal Reserve chair harder to call than his first in June, when the decision to hold rates steady was widely expected.
The Federal Open Market Committee’s meeting began Tuesday and concludes Wednesday, July 29, with a rate decision followed by a press conference.
Two forces pull the Fed in opposite directions
June’s inflation report showed prices cooling to 3.5% from 4.2% in May, giving the central bank room to hold rates steady. But renewed tensions between the U.S. and Iran, along with the breakdown of an earlier ceasefire, have pushed oil prices higher again. That revives concerns energy costs could feed into broader inflation and force the Fed’s hand toward a hike instead.
Yet the odds have barely resolved over the month. A month ago the market gave a hold a 70.1% probability versus 29.9% for a hike, so the uncertainty has persisted rather than cleared.
Warsh has reasons to wait
CNBC’s analysis counts three: Warsh does not seem to buy the arguments for hikes, a hike would undermine the outcomes of the task forces he created, and it risks putting him on the wrong side of politics with the Trump administration. He has also committed to ending “forward guidance”, so he will not say in advance how he plans to vote.
Warsh was dismissive about the energy spike in Senate testimony on July 15, according to CNBC: “Particular price shocks happen to particular prices that we don’t have control over.” He faces a divided committee nonetheless, with perhaps three or four of a dozen voting members prepared to call for immediate rate increases.
Crypto markets flinch first
Bitcoin and the broader crypto market are showing clear signs of caution heading into Wednesday’s decision. The total crypto market cap has dropped roughly 3% to $2.18 trillion, while Bitcoin recently fell to about $63,763.
The Crypto Fear and Greed Index has slipped to 34, reflecting growing fear among traders. Large-cap altcoins including Ethereum, XRP, Solana and Dogecoin are all down between 3% and 5%.
Banks broadly still expect a hold this time, since inflation pressure isn’t yet seen as decisive enough to justify a hike.
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