The Federal Open Market Committee (FOMC) meets this week, and most experts believe that it will not make any changes to the .
The leading indicator of investor sentiment on the direction of rates, CME FedWatch, indicates there is almost no chance that rates will come down from the 4.25% to 4.50% range, where they have been since last December.
Specifically, 96.9% of interest rate traders expect no changes after the Fed meets on July 29-30 – that’s up considerably from 81.4% just one month ago on June 27.
What happened to change some perceptions over the past month? A simple answer is inflation. The Consumer Price Index () has risen for the past two months, jumping to 2.7% in June from a recent low of 2.3% in April. , the Fed’s preferred gauge, increased to 2.3% in May and is expected to increase 0.3% in June to 2.5% when the numbers come out on Thursday, July 31.
“Taking into account the not very positive statistics from the United States regarding inflation, the rate is unlikely to be lowered this week — that would be too optimistic,” Alex Tsepaev, chief strategy officer at B2PRIME Group, a global financial services provider for institutional and professional clients.
The results for June will come one day after the FOMC meets, but it is likely the FOMC members will have a pretty good idea of what the PCE inflation rate will be when they make decide on rates Wednesday.
Calls Mounting for Rate Cuts
Aside from President Donald Trump, who has repeatedly made it known that he wants the Fed to now, there have been a few FOMC members who have indicated a similar sentiment.
In June, FOMC member Michelle Bowman said she would support lowering the policy rate as soon as July should inflation pressures remain contained.
“As we think about the path forward, it is time to consider adjusting the policy rate,” Bowman said. “As inflation has declined or come in below expectations over the past few months, we should recognize that inflation appears to be on a sustained path toward 2 percent and that there will likely be only minimal impacts on overall core PCE inflation from changes to trade policy.
Just two weeks ago, FOMC member Christopher Waller made a speech in New York City, which he called “The Case for Cutting Now.”
“My purpose this evening is to explain why I believe that the Federal Open Market Committee (FOMC) should reduce our policy rate by 25 basis points at our next meeting,” Waller said on July 17.
In summary, Waller argued that tariffs are one-off increases and don’t cause inflation beyond a temporary surge; monetary policy should be close to neutral, not restrictive; and private-sector payroll growth is “near stall speed” and that downside risks to the labor market have risen.
There is speculation that Waller will dissent and vote for a rate cut next week. While it probably won’t impact the outcome, it is notable because dissent on the FOMC is rare.
Jobs Report and GDP This Week, Too
We’ll know more about the private sector jobs market on Wednesday morning when the comes out. In June, the private sector actually lost 33,000 jobs. Then on Friday, August 1, the federal unemployment report for June will be issued. Analysts anticipate the to tick up to 4.2%, from 4.1% the previous month.
In addition, the U.S. Bureau of Economic Analysis will release the second quarter (gross domestic product) on Wednesday morning. The GDP is the primary indicator of economic growth. In Q1, the GDP fell by -0.3%, which meant the economy shrank for the first time since 2022. Two quarters in a row of negative GDP is often considered a recession.
That is unlikely to happen, as the GDP is anticipated by experts to grow by 2.3% in the second quarter. Investors will be watching that closely for signs of stagflation, which happens when inflation is rising, unemployment is increasing, and economic growth is slowing.
That is another reason why the FOMC is not in a hurry to lower rates just yet, said Tsepaev, as stagflation is a growing concern.
“Given that the dollar is the reserve currency for the whole world, all steps should be balanced and calculated, and not based simply on market expectations,” Tsepaev said.