#Fed July Decision 🧐

#Fed July Decision 🧐
What the Latest Data and Signals Tell Us 🤔
The Federal Reserve's July 28-29 meeting is just days away, and the picture has shifted meaningfully over the past few weeks. Here is where things stand.
The Baseline Expectation: Hold
All 104 economists surveyed by Reuters between July 17-21 expect the Fed to leave rates unchanged at 3.50%-3.75% . A three-fourths majority see no change through the end of the year . The market-implied probability of a rate hike has dropped below 15% after the June CPI and PPI reports came in softer than expected .
CaixaBank Research expects a pause with a "vigilant bias" — the Fed can acknowledge recent improvement in inflation data while insisting it needs more evidence before declaring the inflation shock contained .
The Data That Took a Hike Off the Table
June CPI: Headline fell 0.4% month-over-month, bringing the annual rate down to 3.5% from May's 4.2% . Core CPI was flat on the month, lowering the annual core rate to 2.6% from 2.9% . Both came in well below consensus forecasts. The shelter component, a key driver of sticky inflation, rose only 0.1% monthly, suggesting the slowdown in new rents is finally feeding into official measures .
June PPI: Headline fell 0.3% month-over-month, well below the flat reading economists expected. Core PPI rose just 0.2%, below the 0.4% forecast .
June Jobs Report: Employers added only 57,000 jobs, well below expectations, while the unemployment rate ticked down to 4.2% due to a drop in labor force participation . The three-month average hiring pace is now 164,000, down from stronger levels earlier in the year .
June Retail Sales: Rose just 0.2%, showing consumer spending is not reaccelerating in a way that would force the Fed's hand .
The Hawkish Counterweight
Despite the softer data, several factors are keeping a rate hike on the table as a possibility rather than a certainty.
Warsh's Tone: Fed Chair Kevin Warsh has been consistently hawkish. At the ECB Forum on July 1, he said "prices are too high" and reaffirmed the Fed's commitment to price stability . In his July 14 testimony to Congress, he called high inflation an "undue burden" and a "tax on the American people" that the Fed plans to eliminate . He has also criticized the Fed's 2020 policy framework that allowed above-target inflation after periods of low prices .
Manufacturing Inflation: The Philly Fed manufacturing index surged to 41.4 in July, the highest since November 2021, well above the 13.0 consensus estimate . The prices paid index climbed to 53.9 from 53.2, while the prices received index jumped to 27.4 from 20.3, indicating manufacturers are passing through cost increases . This suggests the energy-driven inflation shock is still working its way through the pipeline.
Oil Price Rebound: Much of the June improvement came before the Middle East ceasefire collapsed. Brent crude has surged roughly 25% since the conflict escalated, threatening to reverse the energy-driven disinflation .
FOMC Minutes: The June minutes, released July 8, showed policymakers are increasingly split. Half of the 18 officials who submitted projections supported keeping rates unchanged or cutting, while the other half advocated for raising rates before the end of 2026 . Warsh himself declined to provide a forecast .
The Forward Guidance Shift
Warsh has made a deliberate break from the Powell era by refusing to provide forward guidance . At the ECB Forum, he declined to answer whether a rate hike is on the table for July, saying the moderator was "trying to get me to break this rule" and that "she's going to fail" . He has described the June FOMC statement as "significantly shorter" than past statements and indicated this is the new normal .
The Five Task Forces
Warsh has launched five external task forces to review the Fed's communications, balance sheet policy, data usage, inflation frameworks, and the productivity impact of AI . The leaders include prominent figures like Harvard's Greg Mankiw, Nobel laureate Thomas Sargent, and Andreessen Horowitz's Marc Andreessen . Warsh told Congress the task forces have made "a lot of progress in six weeks" . The communications task force could have near-term impact on how the Fed delivers policy signals .
The Bottom Line
The soft June #CPI and #PPI reports significantly reduced the urgency for a July rate hike, but the Fed is not out of the woods. The rebound in oil prices, ongoing manufacturing inflation, and Warsh's hawkish rhetoric mean rate cuts are not on the table either. The most likely outcome is a hold with a hawkish tilt — Warsh can acknowledge the recent disinflation while signaling that the Fed will not hesitate to hike if energy-driven inflation broadens out .
For investors, the key is not to overreact to any single meeting. Warsh has made it clear he is playing a longer game. The policy signal will emerge over quarters, not days.
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