The event significant for the course of the conflict in the Middle East was also the attack by Yemeni Houthi rebels on Saudi tankers in the Red Sea and the announcement of a maritime blockade of vessels belonging to Saudi Arabia. This means an expansion of shipping threats also to the route that, since the end of February, has been a partial alternative to transport through the Strait of Hormuz.
The observed decline in the intensity of the conflict in the Middle East in recent days contributed to the strong drop in oil prices today.
Significantly lower prices of this commodity are pushing towards a reduction in global risk aversion, a decline in inflation expectations, and a reduction in pressure on bond yield growth.
Will Kevin Warsh decide on a "signal" rate hike?
The most important event of this week in the USA will be the Wednesday FOMC meeting. We expect the Fed to keep the target range for the federal funds rate unchanged at 3.50 - 3.75%, which would mean maintaining rates unchanged for the fifth consecutive time after a total of 75 basis points cuts conducted at the end of 2025. Such a decision would be in line with market expectations. CPI inflation in June fell sharply due to a decline in energy price dynamics, but President K. Warsh, in a speech before Congress, emphasized that one should not draw far-reaching conclusions from a single reading (see MAKROmap on 20.07.2026), which, combined with a significant rise in energy commodity prices in July, significantly limits the dovish tone of the June inflation decline.
We expect the Fed's post-meeting statement to have a hawkish tone, emphasizing – just like the statement after the June meeting – uncertainty related to the situation in the Middle East and determination to bring inflation back to the inflation target (2.0%). We believe that K. Warsh's remarks at the conference will be consistent with his recent hawkish speeches, in which he stressed that the Fed cannot allow inflation to remain at elevated levels. We continue to expect the Fed to keep interest rates unchanged until the end of 2026, with the last cut occurring only in Q2 2027.
However, we see a significant risk of a one-time "signal" rate hike at the July Fed meeting, motivated by the need for President Warsh to build an anti‑inflationary reputation amid rising energy prices and the associated persistent inflationary pressure that hampers a return to the target.
GDP, PCE inflation and July CPI under market scrutiny
On Thursday, important US data will also be released. The market expects the annualized US GDP growth rate in Q2 2026 to be 2.1%, the same as in Q1. We believe that in the structure of US GDP growth in Q2, particular attention should be paid to non‑housing construction investments, which will allow assessing the scale of the impact of investment revival associated with AI deployment, as well as private consumption, which will allow assessing the impact of rising energy prices related to the Middle East conflict on the propensity of US households to consume.
Meanwhile, PCE inflation, in line with market consensus, fell to 3.7% YoY in June from 4.1% in May, reflecting primarily the decline in energy price dynamics observed in June, and core PCE inflation fell to 3.2% YoY in June from 3.4% in May. In our view, GDP data in Q2 and June PCE inflation will remain in the shadow of the Wednesday FOMC meeting and will not have a significant impact on the zloty and domestic debt market.
On Friday, preliminary estimates of Polish inflation for July will be released. We expect CPI inflation to have risen to 3.0% YoY from 2.5% in June due to a markedly higher fuel price dynamic, which was the result of the end of the government’s CPN protection program and the escalation of the Middle East conflict, leading to a strong rise in global oil prices (see above). In the opposite direction, the expected drop in core inflation (2.9% YoY in July versus 3.0% in June) will have an effect.
Although our forecast is slightly below market consensus (3.1%), its realization, indicating a strong rise in inflation compared to June, could contribute to a slight strengthening of the zloty and higher bond yields.
German economy slows, eurozone inflation rises
This week we will also see important eurozone and German data. According to our forecast, quarterly GDP growth in the eurozone increased to 0.1% QoQ in Q2 2026 from -0.2% in Q1, while in Germany it fell to 0.0% in Q2 versus 0.3% in Q1. Thus, GDP data will confirm stagnation of activity in the eurozone in Q2.
Our eurozone GDP forecast is slightly below market consensus (0.2%), so its realization will likely be neutral for the zloty and bond yields.
We expect HICP inflation in the eurozone to have risen to 2.9% YoY in July from 2.8% in June, driven by significantly higher energy price dynamics and an increase in core inflation to 2.5% YoY in July versus 2.4% in June. Thus, July will be the fifth consecutive month in which goods and services prices rose at a rate exceeding the ECB’s inflation target (2.0%).
We expect that due to the indirect impact of higher commodity prices on final goods prices, core inflation will not return to the inflation target at least until the end of 2027.
We maintain our assessment that the strength of secondary inflationary effects will initially be limited, and their impact on inflation will become fully visible only in Q4 this year and the first half of 2027. July eurozone inflation data will be consistent with our scenario of continued tightening by the ECB in the coming months.
