- Inflation moved in the right direction last month, with prices growing at a 3.5% annual pace from 4.2% in May, according to Consumer Price Index data.
- Financial markets are pricing in a 64% chance the Federal Reserve keeps interest rates on hold and a 36% chance the Fed raises rates.
- The Federal Reserve is set to announce its latest decision on rates after keeping borrowing costs elevated throughout the year.
- The current situation is not *if* but *when* on rate hikes, indicating a strong likelihood of future increases.
- This is shaping up to be a true cliffhanger regarding the Fed's decision on interest rates.
- Inflation has remained above the Federal Reserve’s 2% target since 2022 and has accelerated due to rising oil prices linked to the Middle East conflict.
- Higher energy costs are affecting housing affordability, making it harder for families to save for down payments.
- There is a 36% chance of the first rate hike in three years.
The Federal Reserve's upcoming rate decision is critical as inflation shows signs of easing. With inflation dropping to 3.5% from 4.2% in May, driven by lower energy prices, markets are pricing a 64% chance of holding rates steady.12
Despite this positive trend, inflation has remained above the Fed's 2% target since 2022, influenced by rising oil prices linked to Middle East conflicts. Kara Ng, a Zillow senior economist, noted that higher energy costs impact housing affordability, stating, “Beyond raising inflation risk and borrowing costs, higher gas prices have the unintended effect of eating away at household budgets.”8
Market analysts suggest that if the Fed opts not to raise rates, they may signal future hikes. Jason Granet, chief investment officer at BNY, remarked, “The current situation is not *if* but *when* on rate hikes.” The anticipation builds as there remains a 36% chance of the first rate hike in three years, making this decision a pivotal moment for the economy.
“Inflation has remained above the Federal Reserve's 2% target since 2022, driven by rising oil prices linked to the Middle East conflict. Higher energy costs are also impacting housing affordability, making it harder for families to save for down payments, according to Zillow's Kara Ng.”
