US Fed FOMC Meeting: Will Kevin Warsh surprise markets with a rate hike?

The two-day meeting concludes today, with Kevin Warsh set to announce the decision on July 29. The talk of a rate hike emerged when, in a note, Citadel Securities wrote that it expects the Federal Reserve to raise interest rates, reported Bloomberg. If rates are hiked, it could be a surprise move strengthening Chairman Kevin Warsh’s credibility in the battle against inflation.

But then there are valid reasons why Warsh is unlikely to raise rates: he personally disagrees with the rationale for hikes, doing so would contradict the outcomes of his task forces, and it could lead to political tensions with the Trump administration.

But, in his own words, taming inflation is Warsh’s priority. Therefore, a quarter-point increase on Wednesday would reinforce Warsh’s repeated pledge to restore price stability while showing policymakers no longer rely on signaling every policy move well in advance, Frank Flight, the firm’s head of macro strategy, wrote in a note, as reported by Bloomberg.

Will There Be Front-Loading?

There’s another reason that signals a rate hike. According to CME FedWatch, there is only a 29% probability of a rate hike, while 71% expect no change in rates. This shows most of the market still expects rates to stay the same today. But the market pricing in a probability of over one-third for a rate hike indicates a high level of uncertainty ahead of an upcoming Fed meeting, particularly compared to recent years.

Two other things go in favour of a rate hike today. One, the commitment that Warsh showed in June’s press conference, where he prioritized fighting inflation. And secondly, Warsh had moved away from providing any forward guidance to the markets as far as the direction of rates is concerned. Today’s rate hike could cement that idea coming from the chief of the central bank.

Given the strong US economy and a resilient job sector, a rate hike by the US Fed could be considered a case of front-loading any possible rate hike. This means the Fed could be acting early instead of waiting. A larger part of the market, nearly 55% according to CME FedWatch, is expecting a rate hike from the US Fed in September.

“If the Committee or Chair Warsh offer even an inkling of guidance, they likely will indicate that the decision between holding rates steady or hiking in September will be data dependent,” says Bill Adams, Chief U.S. Economist, Fifth Third Commercial Bank.

Not All Are Expecting A Rate Hike

However, not all are expecting a rate hike today. “We expect the Federal Reserve to leave interest rates unchanged at this week’s FOMC meeting while maintaining its wait-and-see approach. We expect Chairman Kevin Warsh to deliver a strong message reaffirming the Fed’s commitment to bringing inflation back toward its target, while emphasizing that future policy decisions will remain data dependent,” says Nachiketa Sawrikar, Fund Manager, Artha Bharat Global Multiplier Fund.

“If inflation proves more persistent than anticipated, the Fed is likely to keep the option of further policy tightening on the table. Given the divergence between market expectations and the underlying macro data, we expect financial markets to remain volatile following this meeting,” adds Sawrikar.

Oil And Inflation

Inflation seems to be falling. The annual inflation fell to 3.5% in June 2026, compared to 4.2% in May. Core inflation also slowed down, rising 2.6%, following a 2.9% increase in May. Since the last FOMC meeting in June, oil prices have been highly volatile.

Following the release of US CPI data in mid-July, oil prices rose in response to escalating US-Iran tensions before falling back to around $87 after briefly exceeding $100. A sustainable drop in oil prices may reduce inflationary risks associated with the Iran conflict, giving the US Federal Reserve room to raise rates initially before considering cuts in the future.

As of July 29, 2:45 AM EST (12.15 pm IST), Brent crude oil prices rose over 4% to nearly $88 per barrel on Wednesday, breaking a three-day decline due to renewed Middle East hostilities that reignited geopolitical tensions and raised fresh concerns about potential disruptions to energy supplies.

Markets

Markets will certainly cheer a rate cut signal and could turn negative if there’s a rate hike as predicted by Citadel Securities. US stocks are already under pressure after chip stocks came under heavy selling across other global markets. Much will depend on the earnings and guidance from Microsoft and Meta, which will be reported today after market hours.

“The market is balancing lower inflation pressure against a darker growth signal: households are becoming more cautious, employment momentum is fading and weaker sentiment could quickly hit spending and corporate earnings. The Fed will see more room to ease, but price action says the market is no longer trading only the war—it is beginning to trade the economic hangover as well,” says Petros Pantzari, Chief Dealer at Monaxa.

Meanwhile, a sharp pull-down of major tech stocks in Japan, South Korea and Taiwan has dented the leading indices. South Korea’s KOSPI index dropped over 8% on Wednesday, following Tuesday’s nearly 11% plunge. Nikkei 225 also closed lower by 1.49% after dipping over 3% on Tuesday. The global selloff in semiconductor stocks heightened fears regarding artificial intelligence spending, impacting the US stock market as well.

The yield on the US 10-year Treasury note steadied around 4.62%, while the dollar index held steady around 101.3 on Wednesday after a volatile start to the week.

Disclaimer: This article is based on market reports, analyst commentary, and publicly available data, and is intended for informational purposes only. It does not constitute investment advice, and readers should not make buy, sell, or hold decisions based solely on this content. Interest rate decisions, market probabilities, and analyst forecasts are subject to change without notice, and actual Federal Reserve action may differ materially from what is discussed here. Please consult a licensed financial advisor before making investment decisions.