July FOMC preview It’s Warsh’s call

US Economic Weekly July FOMC preview: It’s Warsh’s call

Twist in the tale 24 July 2026

Our base case is that the Fed will stay on hold at 3.5-3.75% in July. But the spike in oil Economics prices has made it a close call. With markets now pricing nearly 10bp of hikes in July, United States Chair Warsh faces a difficult choice. Not hiking could challenge the Fed’s credibility on US Economics inflation. But raising rates would go against his framework of looking through supply BofAS shocks. We think July is Warsh’s call as he has enough votes either way. He has strategic Aditya Bhave incentives to hike soon. We still expect three 25bp hikes, in Sep, Oct & Dec. US Economist BofAS The week ahead: focus on the Fed, GDP and PCE

Next week’s data calendar is packed. Besides the Fed decision (Wed), markets will focus Stephen Juneau US Economist on Jun PCE and the first print of 2Q GDP (Thu, previews below). We also get Jun durable BofAS goods (Mon), Jun advance goods trade and inventories (Tue), May home price indices (Tue), Jul consumer confidence (Tue), the 2Q Employment Cost Index (Fri) and Jul UMich Shruti Mishra consumer sentiment (Fri). The Fed’s communication blackout ends Thursday night, so we US Economist BofAS might get some Fedspeak on Friday (nothing is on the calendar yet). June PCE preview: soft inflation to support real spending See Team Page for List of Analysts Based on the June CPI, PPI and import price data, we expect June core PCE inflation to come in at 0.16% m/m. This should lower the y/y rate by a tenth to 3.3%. For headline Glossary PCE, we look for -0.05% m/m and 3.7% y/y. Soft headline inflation should allow for a B&M: Brick-and-Mortar robust 0.4% increase in real spending on the month. We also expect spending in April and May to get marked up, based on revisions in the June retail sales report. Stepping CPI: Consumer Price Index

back, the broad picture is one of sticky inflation and consumer resilience. FOMC: Federal Open Markt Committee

2Q GDP preview: robust underlying momentum GDP: Gross Domestic Product We expect 2Q GDP to come in at a below-consensus 1.7% q/q saar, though the softness HH: Household is largely due to a decline in net exports in the quarter. Underlying domestic demand remains healthy, in our view. We expect consumer spending to increase a robust 2.5%, LFPR: Labor force participation rate rebounding from the weather-related weakness in 1Q. Bottom line, the economy appears to be holding up well. Consumer spending has stayed resilient despite oil price volatility, MA: Moving Average while the World Cup likely provided a modest boost. MSA: Metropolitan Statistical Area . NFP: Nonfarm payrolls

PCE: Personal Consumption Expenditures

PMI: Purchasing Managers’ Index

SEP: Summary of Economic Projections

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July FOMC preview: It’s Warsh’s call Aditya Bhave BofAS

• Our base case is that the Fed will stay on hold at 3.5-3.75% in July. But the spike in oil prices has made it a close call.

• With markets now pricing nearly 10bp of hikes in July, Chair Warsh faces a difficult choice. Not hiking could challenge the Fed’s credibility on inflation. But raising rates would go against his framework of looking through supply shocks.

• We think July is Warsh’s call as he has enough votes either way. He has strategic incentives to hike soon. We still expect three 25bp hikes, in Sep, Oct & Dec.

Twist in the tale Dovish jobs and inflation data since the June meeting had the Fed comfortably on track to stay on hold in July. The spike in oil prices has made things more complicated. At the time of this writing, markets are pricing nearly 10bp of hikes at the July meeting. It doesn’t help that WTI is up more than 10% since the start of the blackout period. So markets are truly flying blind. Our base case is still a hold in July, but it’s a much closer call than…