The Federal Reserve is widely expected to leave its benchmark interest rate unchanged Wednesday afternoon, the opening act of Kevin Warsh's tenure as chairman and a decision that will arrive with the Iran-war energy shock still working through the economy and President Trump still publicly demanding cuts.
The statement, due at 2 p.m. Eastern, is the first since Warsh took the chair, and traders are treating it less as a referendum on this month's policy rate than as a first read on how the new chairman plans to talk about an inflation print that hit a three-year high in May, a jobs report that came in hotter than forecast and a White House that has lobbied openly for easier money.
On the table
Warsh inherits a policy rate that has been on hold for months, an inflation rate running at a three-year high and a futures market that has flipped from cuts to hikes over the past two weeks. Betting markets are now pricing a rise soon, Semafor reported, after May's better-than-expected jobs report and the energy spike that followed the U.S.-Iran war pushed gasoline prices higher and sent electricity costs toward a record this summer.
Raising rates would be "the prudent thing to do," an expert told the Financial Times in comments cited by Semafor, though the same analysis concluded that Warsh will likely try to buy time at his first meeting rather than move on day one.
On the street
The rate-sensitive corners of the market have already started to price the meeting. The average 30-year fixed mortgage rate held at 6.60 percent last week, according to the Mortgage Bankers Association, even as a separate Mortgage News Daily survey showed contract rates falling to their lowest level since May 14. Total mortgage application volume fell 3.8 percent on the week, refinance applications dropped 5 percent and purchase applications slipped 3 percent.
Mike Fratantoni, the MBA's chief economist, attributed the late-week move to the shifting outlook on the Strait of Hormuz, which reopened after Sunday's U.S.-Iran framework. Matthew Graham, chief operating officer at Mortgage News Daily, warned that "some analysts think oil prices have already gotten ahead of themselves" and that any further drop in mortgage rates may depend on the durability of the peace.
What comes after
Voices arguing for cuts on behalf of borrowers and workers were largely absent from the day's preview coverage, with the pressure visible in the run-up running the other way: a White House calling for easier money and a futures market increasingly betting on a hike.
A hold Wednesday would defer both fights to the Fed's next meeting in late July, when the June projections released alongside this week's statement will be tested against fresh data and the first set of dots carrying Warsh's signature.