Traders are increasingly convinced the Federal Reserve will leave interest rates unchanged when the Federal Open Market Committee (FOMC) convenes on July 28-29, even as Chair Kevin Warsh continues to describe inflation as running above the central bank's 2% target. According to the CME FedWatch tool, the probability of a hold has climbed to 78.1%, while the odds of a rate hike stand at 21.9% — a sharp reversal from a month earlier, when hike expectations had briefly surged.
Warsh Draws a Line on Inflation
Speaking at the European Central Bank's annual Forum on Central Banking in Sintra, Portugal, on July 1, Warsh doubled down on the Fed's inflation mandate while declining to preview any specific policy path. "If businesses or households thought the Fed would accept inflation above 2%, I guess they'd be disappointed. We're going to deliver price stability," Warsh told the audience, according to CNBC and Bloomberg.
Warsh, who has publicly opposed the use of "forward guidance" since taking the chairmanship, avoided endorsing any timeline for rate moves. He did, however, strike a modestly more optimistic note on the trajectory of price pressures: "Expectations of inflation over the first four weeks of this period have come down, inflation risks have come down."
June Jobs Report Cools Hike Bets
The shift toward a July hold hardened after the Bureau of Labor Statistics released a softer-than-expected employment report. U.S. nonfarm payrolls rose by just 57,000 in June, well short of the roughly 115,000 economists had penciled in. The weaker print eased fears that the labor market was reheating in a way that would force the Fed's hand this month.
Even so, the broader path for the second half of 2026 is far from dovish. Futures markets are now pricing in a greater-than-75% probability of at least one rate hike before year-end, up from about 58% at the start of June. Most strategists see September as the earliest realistic window for action, contingent on incoming CPI and payroll data.
A New Communication Regime
Warsh's tenure has reshaped how the Fed communicates. He sat out the most recent Summary of Economic Projections "dot plot," reinforcing his view that the central bank should not commit publicly to a rate path. Investors will instead comb through the FOMC minutes, due for release Wednesday, for clues on how divided policymakers remain.
PBS NewsHour and other outlets have highlighted Warsh's parallel emphasis on the Fed's political independence — a message pitched at markets and Washington alike as the institution charts what Warsh has called a "new course."
What to Watch Next
For now, the market's base case is a hold in July, a hawkish message in the statement, and an open door to tightening later in the year should inflation prove sticky. With the June CPI release and additional labor-market data still to come before the meeting, the balance of odds could shift again quickly.
Sources: CNBC ("Fed Chief Kevin Warsh declines to hint at July rate decision"), Bloomberg ("Warsh Says Inflation Risks Are Down, Vows Price Stability"), PBS NewsHour ("Federal Reserve Chair Warsh emphasizes political independence"), Yahoo Finance, CME FedWatch tool.