Citadel Securities believes the Federal Reserve will likely increase interest rates this Wednesday. They predict a small increase of 0.25%, while most of the market expects rates to remain unchanged.
In a recent report to clients, Frank Flight, who leads macro strategy at the firm, explained that traders haven’t fully accounted for the central bank’s shift towards tighter monetary policy.
Why a July Rate Hike Would Matter More Than September
According to Flight, taking action now is more important than delaying. He believes this could change how the market anticipates the Federal Reserve will control inflation.
Starting rate hikes sooner would influence how companies price their goods and how employees ask for raises. Getting ahead of the curve like this could lessen the amount of tightening needed down the road and would support the commitment to getting inflation under control.
According to Flight, investors might not be fully recognizing how aggressively the Federal Reserve is changing its approach to fighting inflation.
Even though recent reports on jobs and inflation have lowered the likelihood of an interest rate cut in July, Flight believes the overall economic situation still suggests ongoing risks of inflation and a healthy job market.
Follow us on X to get the latest news as it happens
How Traders Are Pricing Wednesday’s Fed Decision
Traders are generally sticking to their current positions, but expectations for interest rate increases have risen significantly. How much these expectations have changed differs depending on where you look.
According to CME FedWatch, there’s now a 37.9% chance the Federal Reserve will raise interest rates by 0.25% (25 basis points). This is up from 25.7% last week, suggesting growing expectations for a rate hike.
Prediction markets are still leaning towards a less likely outcome. Kalshi gave it a 28% chance, and Polymarket estimated it at 27.5%.
Both Kalshi and Polymarket significantly changed their prices recently. Kalshi’s contract predicting a rate increase rose by 8 points and has seen over $45 million in trading, while Polymarket’s market on the July decision reached more than $107 million in trades.
Most economists don’t anticipate any changes right now. A recent Reuters survey of 104 experts, conducted from July 17th to 21st, found that none expect a decision to be made at this particular meeting.
2026-07-28 10:26