The Federal Reserve's Federal Open Market Committee (FOMC) will convene July 28-29 to decide monetary policy amid heightened uncertainty over a potential rate hike. Futures markets are pricing a 30% probability of a rate increase, an unusually high level of doubt for a meeting where consensus expects rates to hold steady. The meeting comes as US-Iran military tensions and surging oil prices — with Brent crude briefly exceeding $100 per barrel — intensify inflation concerns, while Fed Chair Kevin Wash's hawkish pivot in recent months has eliminated forward guidance and made FOMC decisions less predictable.
US Treasury Yields Rise to Multi-Year Highs Ahead of FOMC
The 10-year US Treasury yield closed at 4.6790% on July 24, up 12.90 basis points week-over-week, marking the largest weekly increase since mid-May and the highest weekly close since January of last year. The 2-year yield, sensitive to Fed policy expectations, rose 15.40 basis points to 4.3350%, also reaching its highest weekly close since January of last year. The 30-year yield extended gains for a fourth consecutive week, climbing 8.90 basis points to 5.1600% and approaching the 5.20% threshold that would mark its highest level since summer 2007.
The yield curve between 10-year and 2-year notes narrowed by 2.50 basis points to 34.40 basis points, the first weekly tightening in five weeks as short-term yields rose faster than long-term yields. International bond markets in Germany, Japan, and the UK also saw synchronized increases in long-term yields during the week.
FOMC Meeting Expected to Draw Dissenting Votes on Rate Hold
Even if the FOMC holds rates steady, a unanimous decision appears unlikely. Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan, both known for hawkish policy stances, are viewed as likely candidates to dissent in favor of an immediate rate increase. Futures markets reflected approximately 44 basis points of rate increases priced in for the remainder of the year as of July 24, up 12 basis points from the prior week, implying one 25-basis-point hike is certain and a second hike carries roughly 70% probability.
President Donald Trump ordered US military forces to halt airstrikes against Iran on July 24, according to a report by Axios. However, uncertainty remains over whether this decision will lead to renewed dialogue between the two nations. Earlier in the week, Trump stated he was considering large-scale military action against Iran, and reports indicated growing impatience with prolonged conflict and negotiation deadlock.
June PCE Inflation Data and Q2 GDP Release Scheduled for July 30
The June Personal Consumption Expenditures (PCE) price index will be released July 30, one day after the FOMC decision. Market consensus expects the headline PCE inflation rate to decline to 3.7% year-over-year from 4.1% in May, while core PCE inflation is forecast to edge down to 3.3% from 3.4%. If confirmed, core inflation would remain in the 3% range for a sixth consecutive month. The FOMC is expected to incorporate PCE estimates based on previously released June Consumer Price Index (CPI) and Producer Price Index (PPI) data into its policy decision.
Other key US economic releases this week include June durable goods orders (July 27), May S&P/Case-Shiller home price index and July Conference Board consumer confidence (July 28), preliminary Q2 GDP estimate (July 30), Q2 Employment Cost Index and final July University of Michigan consumer sentiment (July 31). The Q2 GDP growth rate is expected to come in near the 2.1% annualized pace recorded in Q1.
The US Treasury Department will conduct three note auctions in a compressed two-day schedule. A $69 billion 2-year note auction and $70 billion 5-year note auction are scheduled for July 27, followed by a $44 billion 7-year note auction on July 28. The condensed auction timeline accommodates the concurrent FOMC meeting schedule.
FAQ
What is the probability of a Fed rate hike at the July 28-29 FOMC meeting?
Futures markets are pricing a 30% probability of a rate increase at the July 28-29 FOMC meeting, according to CME FedWatch data as of July 24. While consensus expects the Fed to hold rates steady, this probability is unusually high and reflects heightened uncertainty driven by surging oil prices and Fed Chair Kevin Wash's elimination of forward guidance.
What did President Trump announce regarding Iran on July 24?
President Donald Trump ordered US military forces to halt airstrikes against Iran on July 24, according to a report by Axios. The decision follows a week of escalating tensions, though it remains unclear whether this will lead to renewed diplomatic dialogue between the two nations.
When will the June PCE inflation data be released?
The June Personal Consumption Expenditures (PCE) price index will be released on July 30, one day after the FOMC meeting concludes. Market consensus expects headline PCE inflation to decline to 3.7% year-over-year from 4.1% in May, while core PCE inflation is forecast at 3.3%, down from 3.4%.
