Kevin Warsh's second Fed meeting: Hold steady or hike? Strategists split

The week Kevin Warsh will host his second meeting of the Federal Open Market Committee since becoming Fed chairman in May. Once again, advisors will be closely monitoring Wednesday's decision for any hints as to the central bank’s long-term rates policy.

Interest rates will be firmly in the spotlight given their important role in financial decision making for families and investors. This can also prompt shifts in advisors’ strategies for their clients, such as making changes to fixed income allocations or talking to clients about rate hike risk.

Unchanged policy rate

At the last FOMC meeting the central bank kept to its path of keeping its policy rate steady at 3.5% to 3.75%. The Committee approved the decision by a 12-0 vote, but noted that inflation remains elevated relative to its 2% goal.

The Fed made its last rate cut in December 2025, but Warsh’s predecessor as Fed Chair Jerome Powell subsequently resisted calls from President Donald Trump to cut rates.

As for this week’s meeting, Jonathan Squires, CEO of risk intelligence platform Tapaas, says that policymakers are widely expected to leave interest rates unchanged. “Until then, the dollar and yields are likely to react to incoming labour market data and geopolitical developments, in particular,” he said, in a note.

These sentiments are echoed by Bill Adams, chief U.S. economist at Fifth Third Commercial Bank. “The Federal Open Market Committee is expected to hold the federal funds target range steady at 3.50% to 3.75% at this week’s decision,” he said, in a note Monday. “This would mark the fifth consecutive meeting with no change since the Fed last cut in December 2025.”

Financial markets will likely focus on the Committee’s assessment of core inflation, according to Adams, who notes that the Fed ended forward guidance after Kevin Warsh became Chair. “The policy statement will likely lay out another mixed picture of inflation’s drivers,” he added. “If the Committee or Chair Warsh offer even an inkling of guidance, they likely will indicate that the decision between holding rates steady or hiking in September will be data dependent.”

The CME’s FedWatch tool puts the probability of rates being unchanged at 62.1% for this week’s meeting, while a hike to between 3.75% and 4% has a likelihood of 37.9%.

Rate hikes looming on the horizon

A number of observers think that rate hikes, rather than rate cuts, could be looming on the horizon. In a note Friday, Melissa Cohn, regional vice president of William Raveis Mortgage said that “inflation is rearing its ugly head,” citing oil prices, which saw Brent crude oil futures jump back to $100 per barrel last week, as well as higher bond yields. “At this point, I would say that the Fed would state that their next move would be more likely to be a rate hike than a rate cut.”

“Unless things turn around dramatically over the course of the next few months, the odds are that there’s a potential rate hike in September,” she added. “If inflation gets out of control, the Fed is going to have to work harder to fight it.”

Oil prices, however, have pulled back since last week, with Brent crude oil futures at just over $88 per barrel Monday.

In a subsequent note Monday, Cohn said that it will be interesting to see what tone Warsh takes this week.“What I’m really looking to see is just how hawkish Warsh is, and because it’s his second meeting and press conference - if he holds one - if there’s more transparency," she said. "It’ll be interesting to see how he’s going to choose to continue to communicate to the general public.”

Set against this backdrop, attentions remains squarely focused on interest rates. “Markets see the July Fed meeting as ‘live’ with a one-in-three chance of a rate hike,” said Stephen Coltman, head of macro at 21shares. “These odds have increased markedly in the past few weeks despite the much softer than expected CPI and PPI data released earlier this month, and despite the pullback in oil prices.”

“Both bonds and equities have suffered from the more hawkish expectations of the Fed and a ‘hold’ on Wednesday would likely bring some welcome relief for investors,” he added.

June’s Consumer Price Index data, released earlier this month, came in below Wall Street’s expectations and was seen as decreasing the likelihood of near-term rate hikes. CPI is an important measure for inflation. The latest Producer Price Index (PPI) data also came in colder than expected, further easing advisor worries about inflation, as well as, potentially, the likelihood of a hawkish Fed interest rate move anytime soon.

Raymond James eyes rate cut

In just the past week, the prospect of a rate hike rose dramatically. In a report Friday, Larry Adam, chief investment officer at Raymond James said that the market-implied odds of a rate hike rose from around 10% to around 35% over the past week, with investors pricing in roughly two hikes over the next 12 months.

However, Raymond James thinks this is unlikely. “Our base case remains that the Fed stays on hold through mid 2027, with the next move being a rate cut in the second half of 2027,” said Adam. “Supporting that view, long-term inflation expectations have remained well anchored,” he added, but noted that elevated oil prices present an upside risk to inflation and the Fed’s policy path.

For advisors, the split among observers is itself noteworthy. With rate-hike odds increasing dramatically, this is an opportune moment to revisit clients' fixed income duration and confirm portfolios aren't overexposed to long-duration bonds if yields climb further. It could also be worth getting ahead of client questions about oil-driven inflation risk — a client who saw headlines about $100 oil last week may not know prices have since pulled back, and a short, proactive note can head off anxiety before Wednesday's decision even lands.