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What Happened
- The Federal Reserve voted to hold interest rates at 3.50%-3.75% in what media is calling a “hawkish pause”.
- The probability of a rate HIKE at the September meeting is surging, despite PCE data coming in cool.
Why it Matters
We have enjoyed steadily decreasing interest rates since July 2025. However, rates have been paused since December 2025, and aren’t showing any signs of coming down soon. Inflation is on a steady uptrend, and despite PCE data coming in soft at 3.7% this week, the job at the Federal Reserve is becoming ever more difficult. The continued war with Iran suggests that oil prices will continue rising, which means inflation will continue rising. While PCE coming in low may be welcome news, we can’t ignore the stranglehold the Strait of Hormuz has on oil prices.
Fed Chair Warsh came into his role as a critic of high interest rates, and critical of how former Fed Chair Powell handled inflation during his tenure. It’s easy for the critic to judge from a distance, but now Warsh is inside the arena, and the weight of a conflicting macroeconomic backdrop is on his shoulders. Warsh clearly desires to lower the TCO for consumers by cutting rates, but he won’t be able to justify it in the current environment. That is, he can’t justify if he wants to be taken seriously. With rates steady and a regional war raging, get ready for price tags and borrowing costs to remain elevated.
What’s Next
It seems that we are facing the stark reality of dipping our toes back into the fire of rate HIKES. Kalshi betting markets are showing the odds of a rate hike at the September meeting continue to surge. Keep in mind, the odds of a rate hike were at 1% in April of this year. Now Kalshi is showing the likelihood of a hike at 57%, taking the leading be on July 22. See for yourself:
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Retrieved From: Kalshi.com/markets/kxfeddecision/fed-meeting/kxfeddecision-26sep on
August 2, 2026.
Rate hikes began in March 2022 and continued on an uptrend until July 2023. We are on track to enter another hiking cycle if inflation doesn’t get under control. I’m going to be honest… The war with Iran just entered its fifth month from what was supposed to be a four-week operation. Inflation is a lagging indicator, which means we haven’t even felt the total impact from restricted oil supply. Even if the war ended tomorrow inflation would still likely rise. To combat oil-driven inflation, President Trump ordered a release of 172 million barrels from our strategic petroleum reserve (SPR). The issue is that now the SPR is at its lowest level since 1983. Obviously he can’t release barrels of oil forever. At some point, sooner rather than later, those oil-slicked chickens will come home to roost.
In Short
- The Fed paused rates between 3.50%-3.75%.
- An interest rate hike at the September FOMC is sitting at a 57% likelihood.
- Oil is the key driver of inflation, and we haven’t felt the shock of the oil crisis yet.
- We are running dangerously low on our strategic petroleum reserves and President Trump
- can’t keep releasing barrels.
Thanks for reading! Until next time, good luck out there and Godspeed.
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Disclaimer:
The views and opinions expressed in The Pioneer Perspective are those of Daniel Harlow and Pioneer Financial, LLC and are provided for informational and educational purposes only. Nothing in this publication constitutes financial, investment, tax, or legal advice.
Market data and information are obtained from sources believed to be reliable, but their accuracy cannot be guaranteed. Past performance is not indicative of future results, and all investments involve risk, including the potential loss of principal.
Readers are encouraged to conduct their own research or consult a qualified financial professional before making any investment decisions.
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