A Rate Hold is the Likely Outcome for Next Week's FOMC

The next FOMC meeting is approaching.

While the market is mindful of the possibility of a rate hike, looking solely at current economic indicators, there is no need to rush.

The U.S. Consumer Price Index for June fell 0.4% from the previous month.

Year-on-year, it rose 3.5%, and the inflation rate remains above the Fed's target.
Since energy prices have also risen significantly compared to the same month last year, it cannot be said that the inflation problem has been solved.

Even so, the most recent figures at least do not show a picture of inflation re-accelerating across the board.

On the other hand, the weakening of employment cannot be ignored.

Non-farm payrolls in June increased by only 57,000 from the previous month, and the unemployment rate was 4.2%.

The growth in the number of employed persons is sluggish, and the slowdown in the labor market is becoming clear.

If the Fed rushes to raise rates in a phase where the CPI is settling and employment is weakening, it will increase the possibility of a recession before curbing inflation.

The problem is geopolitics.

If the situation in the Middle East worsens further and crude oil prices rise, inflation could strengthen again through energy prices.

If monetary policy is tightened excessively in response to supply-side price increases, it may only worsen employment and the economy without sufficiently curbing prices.

And, the U.S. midterm elections are coming up on November 3, 2026.

The closer the election gets, the more political meaning is read into the Fed's decisions, and pressure from the administration is likely to intensify.

In this situation, the most rational course of action is not to rush into a rate hike.

It is to hold rates steady and wait to confirm the next CPI, employment statistics, and crude oil prices.

The July FOMC meeting will be held on the 28th and 29th.

Chair Warsh just took office in May, and he has adopted a stance of not clearly indicating the direction of policy in advance as much as previous Fed chairs have.

While this makes prediction difficult for the market, there are materials for judgment.

What the current situation shows is the rationality of waiting rather than the necessity of a rate hike.

For the Trump administration, there are many achievements they want to highlight before the midterm elections.

Curbing inflation, including crude oil prices.

Victory or the end of the ongoing war in the Middle East.

Progress on crypto-asset policies, such as the CLARITY Act.

If they want to present these as accomplishments for the midterm elections, an additional rate hike that could lead to an economic recession is not a desirable development for the administration.

Multiple factors are moving simultaneously, and their respective expectations are being reflected in asset prices.

There may be a lack of direction until the autumn.

However, if a rate hike is passed over and geopolitical tensions ease, I would like to expect a rise in risk assets toward the end of the year.