US | The hawkish case will likely remain, but not for immediate action

Summary

The Fed is set to keep the fed funds rate target range unchanged at 3.50-3.75% this week. Chair Warsh will likely reinforce the FOMC’s hawkish lean by pointing to the AI investment boom as a potential source of demand-driven inflation.

Key points

• Key points:
• The composition of growth in Q2 appears to have shifted as household demand regained momentum while net exports became a larger drag on growth.
• While the June employment report was weaker than expected, the broader picture still points to a stabilizing labor market rather than a deteriorating one.
• Inflation also came in lower than expected, dampening the case for an immediate rate hike but doing little to ease broader concerns about upside inflation risks.
• Renewed escalation of the Iran conflict heightened inflation uncertainty, complicating how policymakers interpret incoming data.
• With no updated SEP at this meeting and forward guidance removed from the statement, the main near-term policy signal will come from Warsh’s press conference.

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