There’s a good chance interest rates are going up

Like your athletic friend on a group trip, Federal Reserve Chair Kevin Warsh is likely to pitch a hike today.

Thanks to last week’s worse-than-expected inflation report and oil prices skyrocketing due to the Iran war, economists expect the Fed to hike interest rates today for the first time in three years:

• A majority of the 29 fund managers and strategists surveyed by CNBC believe at least two rate hikes over the next year are more likely than not.
• The CME FedWatch Tool shows markets hovering around a 92% chance of a 25-basis-point hike today, a jump from last week’s 70% probability.
• The 10-year Treasury yield hit 5.04% yesterday, its highest level in 19 years, before closing lower. The yield is a benchmark for consumer and corporate lending, and its rise signals a likely Fed rate increase.

Where is Warsh’s head at? Despite Warsh’s quieter approach to decisions, he noted that inflation reports “do not tell me that underlying trends have improved” in a recent speech last month at the Economic Policy Symposium in Jackson Hole, WY. Warsh has also said he wants to take a hands-off approach to determining interest rates—the opposite of Treasury Secretary Scott Bessent’s bond buyback flop.

The politics of monetary policy

President Trump spent the end of Jerome Powell’s eight-year tenure beefing with the former Fed chair over his reluctance to lower interest rates, eventually nominating Warsh to take his place. Kevin Hassett, the White House National Economic Council director, claimed in a TV interview this weekend that inflation was improving, but said Trump supports the Fed’s right to make an independent decision.

Bottom line: Today’s potential rate hike could create a headache for Trump and the Republican Party, as it comes just ahead of a tense midterm election, with many economic warning signs flashing red.—MM