July FOMC

This week’s Fed meeting is one of the more interesting ones in a while, not because a rate move is likely, but because of the mixed signals policymakers are sitting with. The FOMC meets Tuesday and Wednesday (July 28–29), with the decision landing Wednesday at 2pm ET. This isn’t a “dot plot” meeting, so no fresh economic projections. Just the statement and Chair Warsh’s press conference. But that doesn’t mean it’s uneventful. Here’s the tension shaping the discussion: (1) Oil is the wildcard. Escalation in the Iran war, Houthi attacks on tankers in the Red Sea and disruption at the Strait of Hormuz, has pushed Brent crude above $100/barrel, its highest level in roughly two months. That’s exactly the kind of supply-side inflation shock central banks hate dealing with, because it raises prices without any accompanying strength in demand. (2) Inflation is already running hot. The Fed has held its target range at 3.50%–3.75% since the turn of the year, and at the June meeting nearly half of policymakers signaled they’d support a hike later in 2026, a sharp reversal from earlier expectations of cuts. Energy-driven inflation pressure only adds fuel to that hawkish camp. (3) Growth data is more mixed. Cooler recent CPI and PPI prints give the doves something to point to, which is likely enough to keep the Fed on hold this week. Markets are currently pricing roughly a two-thirds probability of no change in July, with attention shifting to September as the meeting where a hike becomes a live possibility. (4) Balance sheet policy is in the background, not the foreground. The Fed ended its quantitative tightening program late last year, moving to reinvest maturing holdings rather than continue shrinking the balance sheet. Don’t expect major balance sheet news this week. It’s more likely to come up as part of Warsh’s broader framework review than as a headline decision. The bigger picture: the Fed built its 2026 playbook around gradually cutting rates. A war-driven oil shock is forcing a rethink, and that pivot from “cuts” to “maybe hikes” is the real story, even if Wednesday itself is a hold.

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