Fed Chair Kevin Warsh Faces Pivotal Rate Decision Amid Supply-Shock Inflation

The Federal Open Market Committee meets on July 28-29 for its second session under Chairman Kevin Warsh. The policy rate decision will be announced on July 29, followed by Warsh’s press conference. Markets are divided on whether the federal-funds target range will stay at 3.50 %-3.75 % or rise by a quarter point.

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Warsh, appointed by President Donald Trump, took over in May and has moved away from the forward-guidance style of his predecessors. Inflation has stayed above the Fed’s 2 % goal for more than five years; the core measure (excluding food and energy) has hovered around 3 % since late 2023. Recent price pressures stem from three supply-side forces:

CNBC

• The renewed Iran war, pushing gasoline and diesel above $4 per gallon since the July 4 holiday and lifting Brent crude above $100 per barrel before retreating to roughly $90.

Kevin Warsh's second Fed meeting: Hold steady or hike? Strategists split

• Aggressive tariffs imposed by the Trump administration.

CNBC

• A surge in artificial-intelligence (AI) capital spending, raising memory-chip and electricity costs.

CNBC

These factors have lifted headline inflation to about 3.5 %, while hiring and wage growth remain weak.

Associated Press

• Core inflation: ~3 % (stable since Dec 2023).

Associated Press

• 10-year Treasury yield: briefly topped 4.7 % (highest in 18 months).

Business Insider

• CME FedWatch: 38 % chance of a hike, 62 % chance of no change.

Kevin Warsh's second Fed meeting: Hold steady or hike? Strategists split

• Business Insider FedWatch: 71 % chance of holding, 29 % chance of a 25-bp increase.

Business Insider

• Investmentnews: 62.1 % chance of holding, 37.9 % chance of a hike.

Kevin Warsh's second Fed meeting: Hold steady or hike? Strategists split

• Moody’s: Iran war adds 0.66 pp to year-end inflation; tariffs 0.17 pp; AI 0.25 pp.

CNN

A hike would raise borrowing costs for mortgages, auto loans and corporate debt, potentially slowing the fragile labor market. Holding rates could reinforce expectations that inflation will persist, challenging the Fed’s credibility and inviting criticism from President Trump, who has urged lower rates. Market volatility has already risen as investors price in a “coiled spring” of possible moves.

Business Insider

Warsh argues that the Fed’s primary tool—interest-rate tightening—cannot address supply-driven price rises. Former Fed Chair Janet Yellen warned that “monetary policy cannot tame supply-driven inflation without exacting unacceptable unemployment costs.”

Associated Press

Probability estimates for a July hike vary—from 38 % (CME) to 71 % holding—reflecting divergent market interpretations of the same data. Inflation-expectation measures are not uniformly reported, leaving analysts uncertain whether expectations are approaching a “danger zone.” The precise impact of AI-driven cost increases remains an estimate rather than a measured outcome.

CNN

• “Unfortunately, inflation does not appear to be headed sustainably back all the way to 2%,” — Lorie Logan, Dallas Fed president

Associated Press

• “Monetary policy 101 says when there is a supply shock, don’t respond. Follow the script. It’s worked pretty well,” — Mark Zandi, Moody’s Analytics

CNN

• “Financial market prices are probably the most important source of information to guide central bankers,” — Kevin Warsh, chair

Bloomberg

The FOMC will release its post-meeting statement at 2 p.m. Washington time on July 29, followed by Warsh’s press conference. The Fed will not publish the Summary of Economic Projections, signaling a continued move away from forward guidance. Market participants will watch the statement for clues about the committee’s “center of gravity” on rate hikes and how it plans to address the ongoing supply-shock environment.

Bloomberg