Fed Expected to Hold Rates as Markets Eye Jackson Hole Policy Signals

The Federal Reserve is widely anticipated to keep interest rates unchanged at its July meeting, maintaining a data-dependent stance as markets await clearer guidance at next month’s Jackson Hole symposium. Bank of America economists suggest Fed Chair Jerome Powell may use the high-profile event to signal the next policy shift rather than preempting it this week.

Markets expect no immediate policy change but will closely analyze Powell’s remarks for clues on inflation risks, particularly amid higher goods prices linked to recent tariff increases. Economists warn that a hawkish tone emphasizing tariff-driven inflation could unsettle markets, while dovish messaging may bolster hopes for rate cuts later this year.

Labor market conditions remain central to the Fed’s decision-making. July’s jobs report is forecast to show modest payroll growth of 60,000 and an uptick in unemployment to 4.2%, reflecting slower hiring. Bank of America has revised its outlook lower, projecting average payroll gains of 50,000 in the second half of 2025 due largely to supply constraints from tighter immigration policies rather than falling demand.

The central bank faces growing internal divisions, with Governor Christopher Waller expected to dissent in favor of a 25 basis point cut, while other members, including New York Fed President John Williams and Atlanta Fed President Raphael Bostic, remain cautious about inflation risks. Powell is expected to reiterate a patient, data-driven approach until more economic data emerges ahead of Jackson Hole.

Investors now look to August as a potential turning point for the Fed’s policy path, setting the stage for heightened market volatility through the summer as inflation, labor trends, and trade tensions continue to shape expectations.