Payden & Rygel: Fed likely to resume rate hikes from September
The US Federal Reserve is likely to resume raising interest rates as early as September despite keeping its policy rate unchanged this week, according to analysts at Payden & Rygel. The Federal Open Market Committee (FOMC) voted 9-3 to leave rates unchanged, but the firm argues that persistent inflation and resilient economic conditions point to further monetary tightening later this year.
The analysts note that support for higher rates within the FOMC appears to be growing. Governor Christopher Waller recently indicated that policymakers should consider tightening policy if core inflation remains elevated, while three committee members dissented in favour of an immediate 25-basis-point increase at the latest meeting.
The investment management firm also argues that the US labour market remains sufficiently resilient to support additional tightening. Although hiring activity has slowed, unemployment declined to 4.2% in June and layoff rates remain historically low, suggesting that labour market conditions are stable rather than weakening.
The firm further contends that financial conditions remain accommodative despite higher bond yields, warning that relying on markets alone to tighten conditions could undermine confidence in the Fed's commitment to price stability. Rising inflation expectations among businesses and households reinforce the case for further action, the analysts say.
Based on indicators including the Taylor Rule, Payden & Rygel believes the current policy rate remains below the level implied by prevailing inflation and employment conditions. As a result, the firm expects the Fed to deliver two rate hikes during the remainder of 2026, beginning in September.