The Fed is predicted to hold interest rates, the market targets a September increase

JAKARTA - The Federal Reserve is expected to hold interest rates in a policy meeting on Wednesday. However, the market is not completely convinced. Wall Street players still consider a 32 percent chance of a hike, while the likelihood of a hike in September reaches 76 percent.

Euronews, quoted Wednesday, July 29, reported that this decision is one of the most difficult to predict in recent years. Inflation has started to slow down, but is still above the Fed's target. New pressure is also coming from oil prices, import tariffs, and a surge in data center investment for artificial intelligence.

Most U.S. economists expect the Fed will not change rates this week. Markets are instead pricing in a hike in September.

Based on the CME FedWatch, a tool that reads market forecasts on The Fed's interest rate moves, more than 30 percent of market participants predict a hike this week. The figure rises to 76 percent for September.

Tensions in the Middle East have again pushed up oil prices. This situation has raised concerns that inflation in the world's largest economy will rise again.

Price pressure also comes from President Donald Trump's tariffs on imported goods. At the same time, large investments to build AI data centers are raising the cost of computer chips, equipment, and electricity.

June's inflation data gave the Fed a reason to hold interest rates. Core inflation was recorded at 3.5 percent on an annual basis, down from 4.2 percent in May. Core inflation also fell to 2.6 percent from 2.9 percent.

The decline was mainly influenced by changes in energy prices. Despite the decline, inflation is still above the Fed's target of 2 percent. This condition has lasted for more than five years.

The Fed's new chairman, Kevin Warsh, previously told Congress that he "does not tolerate" high inflation. Warsh chaired the second policy meeting this week.

Joseph Egelhof and Guneet Dhingra from BNP Paribas Securities assess that the patience of policymakers towards high inflation that has lasted for a long time is almost exhausted. Therefore, the risk of an interest rate hike in September is considered quite large.

The current target range for the federal funds rate is between 3.50% and 3.75% since December 2025. The federal funds rate is a reference for very short-term interbank borrowing rates in the United States.

ING's head of research for the Americas, Padhraic Garvey, said June's inflation data was one of the reasons the Fed could hold interest rates.

According to Garvey, easing tensions with Iran also supported the decision without change. Outside the technology sector, the US economy still shows a number of vulnerabilities.

Fed officials are likely also wanting to wait for additional data. The U.S. Commerce Department is scheduled to release its initial estimate of April-June economic growth on Thursday.

The agency will also release its personal consumption expenditures price index, or PCE, for June. PCE is the Fed's most closely watched measure of inflation.

A number of central bank officials have begun to say that a rate hike may be necessary to get inflation back to the 2 percent target.

"Just staring at inflation with a fierce look and hoping that inflation will subside is not an option," said Christopher Waller, an influential member of the Fed's Board of Governors.