The Fed Cornered, Inflation Threatens Again
The Federal Reserve is expected to hold interest rates again at its July 28-29 meeting in the 3.50%-3.75% range. However, Fed Chairman Kevin Warsh's position could become increasingly difficult as inflationary pressures rise again.
Rising oil prices due to the Middle East conflict and President Donald Trump's new tariff plans have renewed market concerns about price pressures. This could test Warsh's stance, which has tended to avoid clear guidance on the direction of interest rates.
Several Fed officials are beginning to adopt a more hawkish tone. They believe that the central bank cannot simply talk about controlling inflation but must also be prepared to act if price pressures do not subside quickly.
US inflation also remains far from its 2% target. The PCE index in May rose 4% annually, or double the Fed's target. Price pressures are even spreading, not only from energy and tariffs, but also from service costs, wages, and business contracts, which are beginning to incorporate inflation adjustments.
This situation keeps the possibility of an interest rate hike open, although the Fed could still choose to hold rates next week. Inflation data over the next few months will determine whether Warsh can maintain a cautious approach or whether he will have to yield to pressure from his colleagues to raise interest rates.
As a result, the US dollar has the potential to remain strong if the market becomes increasingly confident that the Fed will remain hawkish or open up the possibility of a rate hike. Gold could be under pressure as high interest rates reduce the appeal of non-yielding assets, although geopolitical risks continue to support safe havens. Meanwhile, oil remains a major driver of inflation; if energy prices continue to rise, expectations of interest rate hikes could intensify and put pressure on riskier assets like stocks. (arl)
Source: Newsmaker.id
