Federal Reserve Holds Rates as Inflation Stays Above Four Percent
Markets are pricing in a 75% chance the Federal Reserve holds interest rates steady at its July 29 meeting, with a 25% chance of a quarter-point hike. Inflation hit a three-year high of 4.2% in May, and new Fed Chair Kevin Warsh has signaled rates could rise further before the year ends.
The Federal Reserve is expected to hold interest rates steady at its July 29 meeting, with futures markets showing a 74.9% probability of no change and a 25.1% chance of a quarter-point increase. The probability of a rate cut has fallen to zero.
Inflation reached 4.2% year-over-year in May 2026, a three-year high, driven by persistent grocery price increases even as energy costs cooled. The labor market has remained resilient, giving policymakers less reason to ease monetary policy.
New Fed Chair Kevin Warsh, who took over earlier this year, has overseen a shift in the central bank's projections. The median year-end 2026 forecast for the federal funds rate now sits at 3.8%, up from earlier estimates that had anticipated cuts.
The 30-year fixed mortgage rate rose to 6.46% as of July 15, 2026, reflecting continued pressure from elevated benchmark rates. The average rate on a five-year personal loan fell slightly to 17.82% as of July 13, though rates vary widely based on creditworthiness.
Consumers are feeling the squeeze. Grocery costs continue to climb, and more households are turning to buy-now-pay-later services for everyday expenses, a trend that financial advisors say raises long-term risk for borrowers who are already stretched.
The IRS increased standard mileage rates for the second half of 2026, effective July 1, to account for higher fuel prices. The agency also clarified that contributions to the newly created "Trump Accounts" for children will not trigger gift tax reporting requirements.
Economists say the path forward depends heavily on whether inflation continues to ease in the coming months. If price pressures persist, a rate hike before year-end becomes more likely.
