July FOMC Preview: Better Inflation Data, Worse Geopolitical News

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July FOMC Preview: Better Inflation Data, Worse Geopolitical News

Economics Research

26 July 2026 | 5:20PM EDT

US ECONOMICS ANALYST

n The inflation data have improved but the geopolitical news has worsened in David Mericle

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recent weeks. We expect the -2bp core CPI print for June to translate to 18bp on david.mericle@gs.com

Goldman Sachs & Co. LLC

core PCE and mark the start of a softer trend. We also expect the BEA’s recently

announced methodological changes designed in part to fix the mismeasurement

of AI effects to shave 0.2pp off of year-over-year inflation. But the re-escalation

of the war with Iran and attacks on Russian oil refineries have pushed energy

prices higher and revived fears that the already lengthy series of supply shocks

could continue.

n We expect the FOMC to leave the fed funds rate unchanged at its July meeting

next week. The statement might acknowledge the upside risks to inflation posed

by renewed geopolitical conflict, and there will likely be at least one dissent in

favor of a hike.

n Market pricing implies that investors see the outcome of the July meeting as

unusually uncertain, likely because the FOMC has been split recently, Chairman

Warsh’s own position remains unclear, and some of the re-escalation with Iran

occurred during the blackout period. But most voters appear unlikely to push for

a hike next week after the softer June inflation data, the Fed has historically

avoided delivering surprise rate hikes, and we suspect that voters might be

especially reluctant to do so at a meeting without a Summary of Economic

Projections.

n Despite the rebound in oil prices, we continue to think that the combined impact

of tariffs, the war, and AI effects on monthly inflation should diminish in the