Federal Reserve Chair Kevin Warsh could deliver a major surprise today as policymakers conclude their two-day meeting.
While most economists expect the Fed to keep its benchmark rate at 3.5% and 3.75%, inflation and energy-price pressures may mean a hike is on the table.
Warsh has been pretty vocal about his “no tolerance” stance for elevated inflation. That hawkish stance was evident even in his first Fed meeting, when rate cuts stopped being the Fed’s base case.
The decision is complicated by the inflation data itself. Warsh has previously favored alternative measures that show softer underlying price pressures. But oil-driven inflation linked to the Iran conflict has also strengthened the argument for keeping rates higher—or even raising them.
A hike today could shock markets.
A hold is unlikely but may be accompanied by a warning of a September hike. But either way, the direction of travel has clearly changed.