Inflation has been stuck above the Fed\u2019s 2% target for more than five years. New Fed Chair Kevin Warsh told Congress earlier this month that he had \u201cno tolerance\u2019\u2019 for elevated inflation.<\/a> Warsh is presiding over his second policy meeting this week.<\/p>\n Fed watchers Joseph Egelhof and Guneet Dhingra at BNP Paribas Securities say it\u2019s possible Warsh\u2019s central bank will \u201crelease the kraken\u2019\u2019 with a \u201cshock rate hike\u2019\u2019 this week. More likely, they write, policymakers will hold off, reluctant to risk disrupting financial markets that aren\u2019t expecting a rate increase yet.<\/p>\n Policymakers may also want to see more economic data: On Thursday, the Commerce Department delivers the first look at April-June economic growth and it will also publish the Fed\u2019s preferred inflation measure \u2014 the personal consumption expenditures (PCE) price index \u2014 for June.<\/p>\n Federal Reserve Chairman Kevin Warsh testifies before the Senate Banking, Housing and Urban Affairs Committee to deliver the semiannual monetary policy report to congress, on Capitol Hill, Wednesday, July 15, 2026, in Washington. (AP Photo\/Jose Luis Magana)\n<\/p>\n Federal Reserve Chairman Kevin Warsh arrives to testify before the Senate Banking, Housing and Urban Affairs Committee to deliver the semiannual monetary policy report to Congress, on Capitol Hill, Wednesday, July 15, 2026, in Washington. (AP Photo\/Jose Luis Magana)\n<\/p>\n Show Caption<\/p>\n 1 of 2<\/p>\n Federal Reserve Chairman Kevin Warsh testifies before the Senate Banking, Housing and Urban Affairs Committee to deliver the semiannual monetary policy report to congress, on Capitol Hill, Wednesday, July 15, 2026, in Washington. (AP Photo\/Jose Luis Magana)\n<\/p>\n Expand<\/a><\/p>\n Overall, only 29% of Wall Street traders predict that the Fed will raise rates this week. But 76% foresee a rate hike in September. A month ago, only 59% of traders expected a September rate increase, according to the CME FedWatch tool<\/a>.<\/p>\n \u201cPolicymakers\u2019 patience with high and persistent inflation is broadly exhausted, meaning there is a significant risk\u2019\u2019 of a rate hike in September, Egelhof and Dhingra wrote.<\/p>\n Casting uncertainty over the Fed\u2019s decision-making is the rising violence in Iran<\/a>. The price of oil briefly blasted past $100<\/a> a barrel last week on intensifying fighting. It\u2019s since settled down on hopes the United States and Iran can find some way to reduce tensions.<\/p>\n Yet early Wednesday, Jordan intercepted missiles launched from Iran early just hours after the U.S. military said it knocked down another Iranian barrage launched against American forces in the Middle East, ending a brief pause<\/a> in fighting.<\/p>\n After the U.S. and Israel attacks on Feb. 28, Iran shut down the Strait of Hormuz \u2014 through which a fifth of the world\u2019s oil and natural gas pass. That caused the greatest disruption in oil supplies in history and sent energy prices surging. They\u2019ve since bobbed up and down depending on the ever-changing state of the conflict and negotiations to de-escalate it, but the average cost for a barrel is $10 to $15 more today than it was at this point last year.<\/p>\n Now Iranian-backed Houthi rebels from Yemen are attacking shipping in the Red Sea, attempting to stop tankers carrying Saudi Arabian oil from passing through the Bab el-Mandeb Strait.<\/p>\n The uncertainty puts the Fed\u2019s inflation fighters in a bind.<\/p>\n \u201cSure, it is possible that the latest rise in prices is a transient blip that will reverse in a heartbeat. Then again, it seems equally that the war with Iran will get worse, that the Strait of Hormuz and Bab al-Mandab will remain blockaded for months or longer, and that energy prices will continue to trend up,\u2019\u2019 wrote Carl Weinberg, chief economist at High Frequency Economics.<\/p>\n \u201cShould the (Fed) set monetary conditions on a hope that oil prices will reverse course and stay low \u2026 or should a central bank eschew wishful thinking and do its job of minimizing the probabilities that inflation will exceed target?\u2019\u2019<\/p>\n Inflation has exceeded the Fed\u2019s 2% target since early 2021 when the U.S. economy overheated as it roared back from COVID-19 lockdowns. Inflation peaked at just over 9% in mid-2022 and began to drop in the face of 11 rate hikes by the Fed in 2022 and 2023. But progress has more or less stalled.<\/p>\n Besides the Iran war, other factors adding to inflation pressure are President Donald Trump\u2019s tariffs on foreign goods and a surge of investment in data centers to power artificial intelligence<\/a>, which is driving up the cost of computer chips and equipment and electricity.<\/p>\n![\"Federal](\"https:\/\/www.sandiegouniontribune.com\/wp-content\/uploads\/2026\/07\/Senate_Federal_Reserve_62388.jpg?w=620\")
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