Odds of a Fed Rate Hike Climb as Warsh Prepares to Testify and June Inflation Data Lands

Expectations for a US interest rate increase are firming as investors digest June consumer price index data and prepare for Federal Reserve Chair Kevin Warsh's semi-annual monetary policy testimony to Congress. The Fed has held its benchmark rate in a 3.50% to 3.75% target range, but its June projections turned notably hawkish, with most officials seeing upside risks to inflation from higher energy costs tied to the Middle East conflict. Futures markets have increasingly leaned toward a rate rise later in the year, with the CME FedWatch tool recently showing meaningful odds of an increase by September. Fed Governor Christopher Waller has argued the central bank should not fight the last war on inflation, while still cautioning that hikes remain possible. The debate is complicated by softer data elsewhere: consumer spending was weaker than expected in the first quarter and June job growth was sluggish, raising the risk that tightening into a slowing economy could bite. Producer price data and the Fed's Beige Book follow this week, giving policymakers and investors further evidence on whether energy-driven price pressures are broadening into the wider economy.