CME Group’s FedWatch tool shows a 63.7% probability that the Federal Reserve will keep rates unchanged in July, and a 36.3% chance of a 25-basis-point hike. Just two weeks ago, the hike probability was under 10%, and about 13% last week. In a matter of weeks, rate hike expectations have shifted from "almost negligible" to "impossible to ignore."
The driving force behind this shift comes from the energy sector. Tensions in the Middle East escalated again in July, pushing Brent crude to the $100-per-barrel mark last week. Treasury yields climbed in response, reigniting policymakers’ concerns about runaway inflation. Since 2021, US inflation has consistently run above the 2% policy target. The latest surge in energy costs has prompted some hawkish officials to see a rate hike as a tactical move to signal their commitment to fighting inflation.
At the same time, the June Consumer Price Index (CPI) unexpectedly fell to 3.5%, supporting the case for holding rates steady. The logic of hiking versus waiting is now colliding head-on, creating the most uncertain policy window in years.
Why Economists and the Rate Futures Market Send Opposing Signals
A notable phenomenon has emerged: economists and the rate futures market are offering sharply divergent predictions for the July meeting.
Reuters surveyed 104 economists in mid-July, all of whom expected the Fed to keep rates unchanged. Among them, 78 projected this level would persist through December 2026. Another media survey of 76 economists likewise found unanimous expectations that the Fed would maintain the benchmark rate at 3.5%–3.75% during the July 28–29 meeting.
However, the rate futures market tells a different story. Fed funds futures showed the probability of a hike at just 13% a week ago, rising to 38% last Friday, and now hovering around 36%. The root of this divergence is that economists typically bet on the single most likely outcome, while futures markets price in all possibilities—including low-probability events. Akshay Singhal, Citi’s global head of US bank short-term rate trading, notes that current market pricing for the Fed’s decision is nearly "a coin toss," marking the widest split since September 2024.
Why Walsh Abandoned Forward Guidance
The biggest variable in this meeting comes from Kevin Walsh, who took over as Fed Chair in May 2026.
Walsh has completely abandoned the forward guidance strategy used by his predecessor, making it clear that every policy meeting will now be "live," and investors should not rely on hints about the Fed’s path. In his July 15 Senate testimony, Walsh was both assertive and cautious: "I’m not satisfied with any inflation metric," "Inflation staying above the 2% target for the past five years is a failure of the Fed," and "We must have zero tolerance for persistently high inflation." Yet he has never specified whether the current 3.5%–3.75% rate is sufficient to reach the Fed’s goals.
This shift in communication makes the outcome of this meeting even harder to predict. Under Powell, investors could infer direction from Fed officials’ public statements and meeting minutes. Under Walsh, all signals are deliberately blurred until the decision is announced. Jim Bianco, president of Bianco Research, summed it up: "Without forward guidance, we’ll frequently see 20%, 30%, 40% probability distributions. The market is adapting to this new way of thinking."
Paul Mackel, HSBC economist, referenced the Fed’s surprise rate hike in February 1994, saying, "If the market welcomes it as a prudent move, it will boost the dollar." Mark Dowding, BlueBay’s chief investment officer, said investors can be "very confident" that Walsh wants to send a hawkish signal and will do everything possible to reinforce his anti-inflation reputation, "even if he takes no actual action yet."
How Deep Are the Divisions Within the Fed
Policy divisions within the Fed are widening rapidly.
On the hawkish side, Dallas Fed President Logan and Cleveland Fed President Harnack have both publicly called for a rate hike and have voting power at this meeting. Fed Governor Waller also stated that waiting for inflation to fall on its own is not enough. Officials supporting a hike believe the current rate may not be sufficient to curb inflation, and early action could prevent the need for more aggressive tightening later.
The dovish camp prefers to wait. New York Fed President Williams said there are signs inflation may have peaked and will gradually decline over the next few quarters. Goldman Sachs expects at least one dissenter in favor of a hike, but after the soft June inflation data, most voting members are unlikely to push for a hike this week.
Market expectations are for a 10-to-2 vote, with Logan and Harnack potentially casting dissenting votes for a 25-basis-point increase. Blerina Uruci, chief US economist at Prudential, noted that if dissent exceeds three votes, even if rates remain unchanged in July, it would signal the committee is moving toward a September hike.
Danske Bank senior analyst Joel Rossier predicts the most likely outcome is 2–4 members supporting a hike, but not enough to carry it through.
Which Assets Will React First to a Rate Hike Scenario
If the Fed unexpectedly raises rates by 25 basis points this week, global assets will undergo rapid repricing.
Bitcoin and crypto assets. As of July 28, 2026, Bitcoin has pulled back to around $63,500. Rate hikes typically mean a stronger dollar and reduced risk appetite, putting short-term pressure on risk assets like Bitcoin. The Fed’s decision could impact the dollar, Treasury yields, and overall risk sentiment, with stocks, bonds, oil, and Bitcoin all likely to adjust quickly after the announcement.
US equities. As of July 28, the Dow Jones Industrial Average stood at 52,210.08, the S&P 500 at 7,413.18, and the Nasdaq at 24,932.08. A surprise hike would dampen risk appetite, flatten the Treasury yield curve, and drag on duration-sensitive assets. Tech and growth stocks would likely be hit first.
Gold. As of July 28, spot gold was priced at $4,034.90 per ounce. Rate hike expectations usually pressure gold, a non-yielding asset, but geopolitical risks continue to support it. If a hike occurs, gold may face short-term headwinds; however, if the market interprets it as a strong anti-inflation stance rather than a sign of overheating, gold’s safe-haven appeal could still attract inflows.
US dollar. The dollar index hovered around 101.50 on July 28, near a one-month high. A rate hike would push the dollar higher. HSBC economists say unless the Fed surprises with a hike, this week’s decision may not provide a new catalyst for dollar gains.
How the Market Will Price September if the Fed Holds Steady in July
If the Fed chooses to hold rates steady in July, attention will quickly shift to the September meeting.
CME data shows just an 18.5% probability of unchanged rates in September, a 55.7% chance of a cumulative 25-basis-point hike, and a 25.8% chance of a 50-basis-point hike. The Fed’s own probability for unchanged rates in September is 19.6%, with 25-basis-point and 50-basis-point hikes at 55.2% and 25.2%, respectively. This means the market already views a September hike as the baseline scenario.
Neil Dutta, chief economist at Renaissance Macro Research, offers a more aggressive view: a hike could come before September. "Most other FOMC members support a September hike. Rather than waiting until September when there’s no alternative, it’s better to act now and demonstrate control over policy decisions." Joe Lavorgna, chief US economist at SMBC Nikko Securities America, asks bluntly, "If you can hike now, why wait until September?"
The bond market has already responded. The 10-year US Treasury yield closed at 4.651% on July 28, up more than 30 basis points since the end of June. The 2-year yield stood at 4.3201%, above the Fed’s 3.75% upper limit, reflecting strong expectations for a rate hike.
Four Possible Scenarios for the July FOMC Decision
Based on current data and expert analysis, the July FOMC meeting could play out in four scenarios:
Scenario 1: Hold Steady + Hawkish Statement (most likely). The Fed keeps rates at 3.5%–3.75% but issues a hawkish statement emphasizing upside inflation risks. This is the baseline forecast for most investment banks. The market will see this as groundwork for a September hike, and asset prices may follow a "drop then stabilize" pattern.
Scenario 2: Hold Steady + Neutral Statement (second most likely). Rates remain unchanged, and the statement is neutral, neither committing to nor ruling out a hike. In this scenario, the market will rely more heavily on upcoming economic data, and uncertainty will persist through September.
Scenario 3: Surprise 25-basis-point hike (probability ~36%). The Fed unexpectedly hikes to signal its determination to fight inflation and break the "shackles" of forward guidance. Institutions like Citadel Securities believe this move would bolster Walsh’s credibility on inflation. Risk assets would face short-term pressure, and the dollar would strengthen, but if the market sees it as a sign the Fed is "in control," losses may be limited.
Scenario 4: Hold Steady + More Than Three Dissenting Votes. Even if rates remain unchanged, more than three dissenting votes would send a clear signal that the committee is moving toward a September hike. In this scenario, the market will price in a September hike early, and Treasury yields and the dollar may continue to rise.
Conclusion
The July 2026 FOMC meeting stands at a rare policy crossroads. The probability of a rate hike has surged from under 10% two weeks ago to 36%. The gap between economists and the rate futures market is the widest in nearly two years. Walsh’s abandonment of forward guidance has left the market without its traditional anchor.
Whatever the outcome—holding steady or a surprise hike—the decision will have significant and immediate effects on crypto assets, US equities, gold, and the dollar. Over the longer term, the Fed’s shift under Walsh—from "chair-led" to "committee-driven" decision-making—may mean the market faces more frequent, highly uncertain policy moments like this week’s.
FAQ
Q1: What is the current probability of a Fed rate hike in July?
As of July 28, 2026, the CME FedWatch tool shows a 36.3% probability of a 25-basis-point hike and a 63.7% probability of rates remaining unchanged.
Q2: Why did the rate hike probability jump from under 10% to 36% in just two weeks?
The main driver is the energy sector—Middle East tensions pushed Brent crude to $100 per barrel, reigniting inflation concerns. Meanwhile, the June CPI fell to 3.5%, supporting the case for holding steady. The collision of these two logics caused sharp swings in market pricing.
Q3: What does Walsh’s abandonment of forward guidance mean for the market?
It means investors can no longer infer policy direction from Fed officials’ public statements and meeting minutes. Every meeting will be "live," and the market must rely more on real-time data rather than hints from the central bank.
Q4: What happens to Bitcoin if the Fed hikes rates?
Rate hikes typically mean a stronger dollar and reduced risk appetite, putting short-term pressure on risk assets like Bitcoin. The actual impact will depend on the statement’s tone and market expectations for future policy.
Q5: What are market expectations for the September Fed meeting?
CME data shows a 19.6% probability of unchanged rates, a 55.2% chance of a 25-basis-point hike, and a 25.2% chance of a 50-basis-point hike. The market sees a September hike as the baseline scenario.
