The Federal Reserve Should Raise Interest Rates Today, but It Won't for One Fundamental Reason

Today is a pivotal day for Wall Street’s major stock indexes, the Dow Jones Industrial Average (^DJI +1.03%), S&P 500 (^GSPC +0.21%), and Nasdaq Composite (^IXIC -0.22%), as well as consumers. Mere hours from now, the 12 voting members of the Federal Open Market Committee (FOMC) will render their verdict on interest rates.

Although the probability of the Fed raising the federal funds target rate on July 29 has effectively tripled over the last week from 12.8% to 37.9%, according to the CME Group‘s FedWatch Tool, it’s unlikely that policymakers will increase interest rates. This prediction of inaction boils down to one fundamental factor that governs the FOMC: it’s a reactive, not proactive, body.

Economic data, not guesswork, guides monetary policy decisions

From a statistical standpoint, economic data points to eventual rate hikes — just not at the July FOMC meeting.

On the one hand, energy supply issues are rearing their head once more. Iran has, yet again, shut down the Strait of Hormuz to most maritime traffic, thereby choking off the daily flow of up to 20 million barrels of petroleum liquids. Higher oil prices translate into steeper costs at the fuel pump for businesses and consumers, with no end to the Middle East military conflict in sight.

We’ve also witnessed the early stages of Trumpflation evolving. Inflation that’s specifically driven by President Donald Trump’s policies (Trumpflation) is no longer just an energy issue. The stickiness of Core Personal Consumption Expenditures (PCE) in the wake of a decline in headline inflation in June suggests that inflationary pressures have spilled over into the broader economy.

BREAKING: US May PCE inflation, the Fed’s preferred inflation metric, rises to 4.1%, the highest reading since April 2023.

Core PCE inflation rose to 3.4%, its highest since October 2023.

US inflation is now officially running at more than double the Fed’s 2% target.

— The Kobeissi Letter (@KobeissiLetter) June 25, 2026

But while we have evidence that fuel prices are climbing, once again, policymakers lack the tangible, broad-based, backward-looking evidence they would need to adjust interest rates. For example, June Core PCE won’t be released until July 30, one day after the two-day FOMC meeting concludes.

Additionally, headline inflation dipped from 4.2% in May to 3.5% in June. Without hard evidence of a reacceleration to this figure, which we’ll likely see in July’s inflation data (reported in mid-August), courtesy of rapidly rising energy prices, the FOMC is apt to stand pat on interest rates.

Fed Chair Kevin Warsh is making things challenging for Wall Street

What makes this interest rate decision even more challenging for Wall Street and investors is that Fed Chair Kevin Warsh has done away with forward-looking guidance.

For more than two decades, it had been customary for the FOMC to include language in its meeting statements that hinted at its next move (i.e., easing or tightening bias). Warsh axed this language at his first FOMC meeting as Fed chair in June, arguing that forward-looking guidance can potentially hamstring policymakers into decisions that don’t fit dynamic economic data.

BREAKING: Fed Chair Kevin Warsh announces that the Fed has “dropped” forward guidance.

“Forward guidance is not the business we should be in,” he says.

— The Kobeissi Letter (@KobeissiLetter) June 17, 2026

With a relatively tight-lipped Fed chair and no forward-looking guidance, this marks one of the most uncertain interest rate decisions of the century. While it’s unlikely the Fed will adjust interest rates later today (July 29) without economic data to react to, there’s an exceptionally high probability of a rate hike at the Sept. 15-16 FOMC meeting.

If and when interest rates do rise, it could stymie the partially debt-financed artificial intelligence data center build-out and halt the Dow’s, S&P 500’s, and Nasdaq Composite’s parabolic rallies in their tracks.