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Highlights
We see roughly equal odds of a July hike based on the data and Warsh’s comment. Still, while Warsh has promised a family fight, we haven’t yet seen that Fed hawks are up for it. That may change this week.
Bloomberg 7/13/26
Money market pricing on Monday suggests traders boosted their wagers for a July quarter-point rate increase after a spate of fresh US strikes on Iran. The pricing reflected a 50% possibility of a hike, from less than 40% earlier in the session, as Fed Governor Christopher Waller said policymakers may need to raise rates if underlying inflation continues to signal broad price pressures.
Thoughts for the Weekend: Don’t Expect Price Stability Anytime Soon
Bottom Line: Warsh has promised regime change and a recommitment to price stability, although as commentators have noted he has not given any guidance on the tactics needed to establish price stability, including the time horizon. What little guidance Fed speakers are providing suggests the July outcome is dependent upon upcoming inflation data. That suggests no regime change, the status quo still holds. Next up is Waller on Monday. His comments this week ran contrary to the trend and suggest he will break the pattern. Either way, a Fed that continues to tolerate above target inflation is one that is supportive of nominal asset prices, and even bending the curve will leave a long period of above target inflation ahead. From what we see now, the Fed has no intention of putting inflation back on a path to 2%. The magic number appears to be 2.9%, which the Fed may be able to achieve with a little pressure on the BEA to update its methodol
Wall Street Journal 7/13/26
Federal Reserve governor Christopher Waller said Monday an interest-rate hike should be on the table if this week’s inflation data show price pressures remaining firm, his clearest signal yet that he could back a rate increase this summer.
Waller cited the rise in “core” inflation, which excludes volatile food and energy prices, and, notably, said the rise predated the spike in energy prices this March from the Iran war. He said he was “determined to avoid repeating” the Fed’s 2021 mistake of responding too late to rising prices. “If we get another hot reading on core inflation this week, then the [Fed] will need to consider tightening monetary policy in the near term,” he said.
Bottom line: June 18 is likely a hold — tighter financial conditions are already doing the BOE’s work, and Bailey will not move rates in a constitutional vacuum. July 30, a full BOE projection round, is the first live decision point. The tail risk is a left-leaning successor who loosens fiscal conditions and forces the MPC’s hand. Watch financial conditions not political noise.
Bloomberg 6/18/26
The Bank of England held interest rates at
3.75% as it said the recent fall in oil prices was
“encouraging,” even while two policymakers voted for an
immediate quarter-point hike over concerns of persistent
inflation.
The committee left its guidance unchanged and lowered its
estimate of peak inflation to 3.25% in the fourth quarter of
this year, below the 3.6% it had projected in April.
Bottom Line: The SNB will maintain its policy rate at 0% at least through the rest of the year unless there is a meaningful deviation from the current macroeconomic environment. Inflation is on target, growth is accelerating, and the latest projections have headline inflation on target through 2028 at the current policy rate. The SNB retains space to intervene in the FX market if the franc’s strength threatened to lower inflation below the target again. In this environment the next move is more likely to be a rate hike than a cut. However, we do not expect this to happen in 2026.
Bloomberg 6/18/26
The Swiss National Bank warned investors that a Middle East peace deal hasn’t altered its state of readiness to sell the franc if such a stance is required.
Policymakers led by President Martin Schlegel kept the interest rate at zero and restated their willingness to intervene in the currency. They added a proviso about doing so “if necessary,” evolving wording used repeatedly by officials since the Iran war broke out.
The decision suggests officials remain fearful of renewed pressure on the franc but are adapting to changed circumstances.
We expect that the FOMC statement will move to a neutral bias this week, but hawks will argue for a move straight to a hiking bias. Whether they will be successful depends on Warsh.
We think that Fed officials will eventually conclude that it’s preferable to recalibrate policy sooner than later rather than risk a steeper rise in rates if core inflation continues to rise.
Our read of the data argues for a 70% chance of a rate hike in September. As noted earlier, we think underlying inflation is sticky and the labor market recovering. Moreover, if oil stabilizes here or falls further, resources will transfer back from oil producers to oil consumers and households will have the capacity to bear higher core inflation.
Wall Street Journal 6/17/26
Federal Reserve officials signaled Wednesday that their next move may be to raise interest rates, not cut them, a striking reversal at Kevin Warsh’s first meeting as chairman and a sign of how sharply the inflation outlook has turned.
The Fed held its benchmark rate steady, in a range of 3.5% to 3.75%, in a unanimous vote. But officials’ quarterly economic projections told the story of the shift: Nine of 19 officials penciled in at least one rate increase by year’s end, up from none in March. Just one foresaw a cut, down from 12.
Investors had braced in recent weeks for a higher-for-longer posture from the Fed, but this was sharper and reflected a committee inching from a watchful hold toward readiness to raise rates.
Bottom Line
The Fed is missing only on one side of the mandate. Holding rates steady at this point will become increasingly untenable if the labor market rebound continues. At this point, the Fed does not need to hike rates aggressively and put upward pressure on the unemployment rate as it did in 2022. Presumably, the Fed prefers not to recreate that episode. To avoid a 2022 redux, Fed hawks will argue the need to take back some of last year’s rate cuts, and to do so quickly given that additional inflationary pressure from the energy shock puts downward pressure on real rates and aggravates an already worsening inflation picture.
Wall Street Journal 6/17/26
Wednesday’s interest-rate projections showed that Federal Reserve officials were a little more hawkish than many investors had anticipated.
Heading into the meeting, most investors expected that officials’ median interest-rate forecast for the end of 2026 would nudge up to at least 3.6% – the current level of rates – from the last forecast of 3.4%. In the end, however, enough officials projected a rate increase that the median forecast climbed all the way to 3.8%.
That was a blow to stocks and bonds, with major stock indexes turning negative and short-term Treasury yields climbing sharply.
This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).
Oil Shock Fears Overstate Near-Term Risks to Consumers
Fed speakers and clients frequently cite expected consumer weakness due to higher energy costs as reason to be cautious about economic growth. We believe such concerns are likely overstated for two reasons. First, inflation weighs on measured activity but like in 2022 this is more an artifact of data construction rather than a sustained change in the pace of activity. Second, we think that the Bureau of Economic Analysis (BEA) income measures understate household purchasing power. If we are correct, the Fed is overestimating the fragility of consumer spending.
FT 6/17/26
US shoppers stepped up spending in May as bumper tax refunds offset the inflationary effects of the Iran war, signalling the economy remains in robust shape as Kevin Warsh takes the helm at the Federal Reserve. Retail sales in May rose 0.9 per cent from the previous month to $764bn, according to data released by the Census Bureau on Wednesday, ahead of Wall Street expectations. They were up 6.9 per cent versus May 2025. Much of the increased spending was driven by elevated prices at the pump, with petrol station sales rising 3.4 per cent. But underlying retail sales were also strong, with a core measure stripping out volatile items including fuel and car sales gaining 0.7 per cent.
While holding the cash rate at 4.35% this month is expected, the more important question is no longer whether the Reserve Bank of Australia (RBA) hikes again — it is when it cuts.
We expect Governor Michele Bullock to use her press conference to retain hawkish guidance and keep the door nominally open to an August move, but the data since May 5 have shifted the balance of risks materially.
Another hike is looking less likely — and a rate cut has moved from a distant prospect to the next likely move.
Bloomberg 6/16/26
Australia’s central bank kept open the
possibility of further policy tightening on Tuesday after
leaving its key interest rate unchanged, as Governor Michele
Bullock argued that inflation could still go either way.
The Reserve Bank’s nine-member board unanimously held the
cash rate at 4.35%, its first pause of the year, in response to
signs that a trio of hikes are beginning to weigh on the
economy.
Bottom Line: Ueda’s hospitalization is a logistical complication, not a policy one. With Himino chairing and Uchida at the podium, the BOJ will proceed to raise its key policy rate 25bps to 1% on June 16 — the first hike in six months and the highest rate since 1995.
Bloomberg 6/16/26
The Bank of Japan raised its benchmark
interest rate to the highest since 1995 and pledged more hikes
to come, fueling speculation of another move before the end of
the year.