The Federal Reserve held interest rates at 3.5%-3.75% at its July meeting, but a 9-3 vote with three members calling for an immediate 25-basis-point increase reveals deep divisions within the institution. June inflation came in at 3.5% year-over-year, down from 4.2% in May, while core CPI stood at 2.6%, both still far from the Fed’s 2% target. Energy prices, the main driver of improvement, remain exposed to geopolitical tensions in the Middle East that could push inflation back up. Markets are currently pricing in a 36% probability of a rate hike at the September 15-16 FOMC meeting, with the decision largely depending on the CPI report expected around August 12.
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