Fed Faces Growing Pressure to Hike Rates as Price Risks Rebound

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessFed Faces Growing Pressure to Hike Rates as Price Risks ReboundFederal Reserve officials will head into their policy meeting this week confronting a resurgence in price pressures that could make their decision on whether to hold or hike interest rates a close call — and a contentious one.Author of the article:Jonnelle Marte and Maria Eloisa Capurro You can save this article by registering for free here. Or sign-in if you have an account.Kevin Warsh, chairman of the Federal Reserve, during a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington on July 15, 2026 Photo by Daniel Heuer /Photographer: Daniel Heuer/Bloom(Bloomberg) — Federal Reserve officials will head into their policy meeting this week confronting a resurgence in price pressures that could make their decision on whether to hold or hike interest rates a close call — and a contentious one.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountRenewed tensions in the Middle East have sent oil prices soaring again, overshadowing a tamer-than-expected reading on June consumer prices that seemed to offer officials breathing room to keep rates stable. Add to that a demand boom fueled by artificial intelligence and the Trump administration’s announcements of new tariffs, and Fed watchers see the possibility of dissents at the July 28-29 meeting if officials again leave policy unchanged.Investors in recent days have also boosted their bets the central bank could hike at this week’s meeting, putting the odds close to 40% at one point last week.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try again“Things are definitely heating up in the conflict in the Middle East and, for oil, the risk of moving significantly higher from here has increased,” said Alex Payne, a senior portfolio manager at Vanguard. “The market is adjusting to the risk of inflation being a little bit stickier due to some of these geopolitical issues.”A growing number of policymakers have outlined a rationale for why they support higher rates now, or could soon.Dallas Fed President Lorie Logan earlier this month called for modestly higher rates, citing her view inflation isn’t heading sustainably back to the Fed’s 2% goal. Cleveland Fed President Beth Hammack also chimed in recently, saying “there is no conflict” in the Fed’s mandates and inflation is a bigger concern than employment currently. Both will vote on this week’s interest-rate decision and could dissent if officials opt to hold steady. “It is clear listening to the Fed officials that you have a small group — like Logan, Hammack — who probably are ready to get going,” said Claudia Sahm, chief economist at New Century Advisors LLC. “And then there’s a pretty large group that wants to see more improvement — and soon.”Even at last month’s meeting, when officials left policy stable for a fourth consecutive time, a few policymakers already saw a case for raising rates. Minutes of that gathering also showed most officials had discussed scenarios in which inflation remained elevated due to AI-related demand, the Middle East conflict or the effects of tariffs. And almost all in that group indicated that such scenarios would likely warrant higher rates.Since that meeting, the Trump administration said it would impose fresh tariffs on Canada and other trading partners, a fragile ceasefire between Iran and the US fractured and robust AI investment has shown few signs of slowing. Fed Chairman Kevin Warsh has reaffirmed the Fed’s commitment to reducing inflation, vowing on Capitol Hill this month to use the central bank’s tools to achieve price stability. But his reluctance to offer specifics on how he plans to use those tools has kept markets guessing about where rates are headed — even in the near term.At the close of last week, investors were pricing in about a 35% chance for a rate increase at this meeting, according to federal funds futures contracts. Those odds had dropped to roughly 10% after Labor Department data released on July 14 showed the US Consumer Pice Index fell in June for the first time in six years as gasoline prices declined. But the drop reversed amid the re-escalation of the war with Iran.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.“Roughly one third of the banks we work with are positioning for further rate increases, while the rest are hedging against cuts,” said Pradeep Bhatia, chief executive officer of Derivative Path Inc., which helps financial institutions hedge rates and currency risks. “That kind of bifurcation tells you the market has stopped trying to predict the Fed and started preparing for both outcomes.”Officials may be comfortable leaving rates unchanged on the heels of the cooler June inflation reading, said Veronica Clark, an economist at Citigroup Inc. If future data reports show limited pass-through from higher energy prices and rising unemployment, policymakers may opt to extend the hold on borrowing costs or even cut rates, she said. Some officials have indeed suggested the Fed can be patient for now. But they’ve also said the central bank may need to hike in upcoming meetings if price pressures don’t abate. “In a scenario where actual inflation does not start to cool down soon, I believe that it could be appropriate to reconsider our current policy stance,” Fed Vice Chair Philip Jefferson said two days after the CPI report.Lifting rates this month could help Warsh build credibility in his fight against inflation and may be viewed as less political than a rate move closer to the midterm elections in November, said Joseph Lavorgna, chief economist of the Americas for SMBC Nikko Securities America and a former Treasury Department official during President Donald Trump’s second term. Trump criticized former Fed Chair Jerome Powell after officials lowered rates by a half percentage point in September of 2024, weeks ahead of the presidential election, calling it a “political move” designed to help his election rival, former Vice President Kamala Harris.“Going in September or, God forbid, October – a first hike, right before the mid-terms – how’s that going to look? He might as well go now,” said Lavorgna.Lavorgna added Warsh might be able to soothe the president by framing a hike as a move that could help hold down longer-run market rates, which Trump cares about, by containing inflation expectations.Whatever the outcome, Warsh’s post-decision press conference will be closely watched for clues on how he and his colleagues see the economy evolving. “I think that’s the key thing that we need to learn over these next several meetings — about where the center of the committee is on whether or not rate hikes are needed,” said Matthew Luzzetti, chief US economist at Deutsche Bank Securities Inc.—With assistance from Michael MacKenzie and Yizhu Wang.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.