Markets Brace for FOMC Rate Decision

Flash Update: US RATE MARKETS – WEDNESDAY JULY 29, 2026

• UST yields and SOFR swap rates are ticking higher on renewed hostilities in the Middle East and higher oil prices

• Iran attacked a US base in Jordan overnight, prompting President Trump to say the US would “be hitting them hard” in response

• Saudi Arabia also hit military targets backed by Iran in Iraq, further enflaming regional tensions

• The US-Iran conflict remains the primary driver for the rate markets

• Equity markets will also remain in focus as pressure on the tech sector increases – Chipmakers and AI names remain most vulnerable

• The Fed’s external communications blackout continues; Fed officials will be in the “quiet period” until 7/30

• The next FOMC rate decision is due today, July 29th at 2:00 PM

• Odds for a 25 bp rate hike are sitting at ~35.8% as we await today’s FOMC rate decision (odds for a rate hike were at 31.5% yesterday)

• FOMC Chairman Kevin Warsh will hold a post-meeting press conference this afternoon at 2:30 PM

• Next up for key data: June PCE and 2Q Advanced GDP data print on Thursday, 7/30 at 8:30 AM

• Short-term SOFR swap rates are trading up ~1-3 bps this morning, depending on tenor

• Medium-term SOFR swap rates are up ~1-3 bps currently, depending on tenor

• Long-end SOFR swap rates are trading up ~1-2 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are ticking higher this morning as tensions in the Middle East flare-up once again. This morning, President Trump said the US would hit Iran hard after a recent attack that targeted a base in Jordan. President Trump, speaking to Fox News, said “we’ll be hitting them hard,” adding that “they’re going to get a beating.” Just yesterday, President Trump had indicated a preference for talks over new attacks, so today’s developments represent another “about face” on the conflict. The fresh attacks and President Trump’s comments sent oil rising to session highs, leading to higher rates this morning. The new attacks once again dashed hopes that the two sides would return to the negotiating table.

Market participants will continue to monitor a variety of potential market catalysts. Continued uncertainty surrounding the conflict in the Middle East, anxiety about high tech-sector equity valuations and the surge in AI infrastructure spending, jitters surrounding the potential for a deluge of new tariffs and today’s Fed rate decision are all weighing on markets.

Thus far, none of the other market “hot spots” have been able to wrest the “spotlight” away from the conflict in the Middle East for any sustained amount of time. This has largely been the case since the onset of the war. We will see if the Fed can steal some of the spotlight this afternoon!

We will see PCE and Q2 GDP released tomorrow at 8:30 AM. The market reaction to tomorrow’s data will likely hinge on what the FOMC does and says this afternoon. A stronger-than-expected PCE print would argue for a rate hike, whereas a weak GDP print would support the view that the Fed should continue to hold rates steady for the near term. Expectations for tomorrow’s June PCE and Advanced Q2 GDP data are as follows: Headline PCE MoM, -0.1% (vs. 0.4% the prior month); Headline PCE YoY, 3.7% (vs. 4.1% prior); Core PCE MoM, 0.2% (vs. 0.3% prior); Core PCE YoY, 3.3% (vs. 3.4% prior); Advanced Q2 GDP, 2.0% (vs. 2.1% prior); Core GDP Price Index, 4.0% (vs. 3.6% prior).

FOMC PREVIEW:

The FOMC is anticipated to hold the benchmark rate steady today. However, given the reduced Fed transparency, a 25 bp rate hike today is not out of the question. Traders will also be carefully scrutinizing the official statement for clues to the Fed’s “go forward” thinking. We also may not get much from Chair Warsh today, assuming he sticks to his new “no forward guidance” policy. I am interested to see how the market reacts to the new Fed Chair’s approach. There is also a ton of speculation swirling around regarding the potential impact of Mr. Warsh’s “task force” – there may be changes to the way the Fed communicates, collects, and analyses data and even a possible revision to the Fed’s dual mandate. Market participants are very interested in what the “task force” will ultimately announce…and implement!

Fed policy adjustment expectations continue to shift. Odds for a 25 bp Fed rate hike at the July meeting are now sitting at ~35.8%. That figure was at ~10.2% just two weeks ago – and yes, it was also higher after hostilities between the US and Iran intensified. Odds for a rate hike in September have been holding around 80% since last week (~80.1% today), including a 24.7% chance for a 50 bp rate hike.

Fed officials remain within the pre-meeting “quiet period” until July 30. We don’t really see any key data released ahead of the Fed rate decision today. I expect traders to keep one eye on the Fed and the other eye on the conflict in the Middle East. One thing is certain: Expectations for the Fed and for the path forward for interest rates are changing and evolving almost every day.

Market Sees Rate Hikes on the Horizon; Economists are Less Certain…Market Awaits FOMC Input

Source: Bloomberg, LLP | CURRENT FOMC POLICY ADJUSTMENT EXPECTATIONS THROUGH JANUARY 2028

“Key News” the market is tracking includes:

• Geopolitical developments continue to weigh on markets.Developments in the US/Iran “war” will continue to dominate market sentiment.

• Market participants continue to track developments in the US equities markets. There is still a sharp focus on the performance of the growing AI sector. Overall market sentiment, and perhaps even economic performance, could be impacted by “tech” earnings for the foreseeable future.

• Tariffs are once again in focus, as President Trump implements a new round of tariffs and threatens more are coming. This is the last thing global markets need right now – they are already grappling with massive inflation uncertainty due to the conflict in the Gulf. This is a developing story, so the market impact is undetermined currently.

• The possibility exists we may be facing another government shutdown soon. Lawmakers have reached a temporary compromise to avert a shutdown for now, but the threat of another government shutdown looms.

SOFR Swap Rate Summary: The 1Y SOFR swap rate is trading up ~1-3 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~1-3 bps. 5Y and 10Y SOFR swap rates are trading up ~1-3 bps this morning. The very back-end of the swap curve is currently up ~1-2 bps from yesterday’s closing levels.  

Please note: Market levels can change rapidly – rate cap premiums are subject to a dynamic market that can change frequently.

CHART 1:US RATES SNAPSHOT: 9:30 AM Eastern

Chart 1 Key:

• Far Left Columns:US Treasury Yields & Change on Day (bps)

• Center Columns:SOFR OIS Swap Spreads (bps) & Change on Day (bps)

• Far Right Columns:SOFR OIS Swap Rates & Change on Day (bps)

UST YIELDS | SWAP SPREADS | SOFR SWAP RATES

Source: Bloomberg, LLP | 9:30 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES TICK HIGHER AS MIDDLE EAST HOSTILITIES RESUME

SOFR swap rates are ticking higher this morning, as the pause in hostilities in the Middle East was short-lived. This is simply a continuation of the market theme we have experienced for the past two months: Progress towards peace and lower oil prices have generally led to a decline in rates; Increased hostilities and higher oil prices have had the opposite effect, and disproportionately so, as we know.

Market participants will continue to anxiously monitor a host of market forces at work. Cautious uncertainty surrounding the conflict in the Middle East, the sustainability and veracity of tech sector equity valuations and the path forward for the FOMC are making it extremely challenging to chart the path forward for swap rates currently.

US-IRAN WAR IMPACT: Key SOFR Swap Rate Movements Since The US-Iran War Began:

• The 2-year SOFR swap rate closed at 3.21% on Friday 2/27 – it is currently trading at ~4.155%(+94.5 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~4.104%(+88.4 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.208%(+68.8 bps)

CHART 2:Short-End SOFR Swap Rates – Year-To-Date 2026

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES; YTD 2026

CHART 2A:Long-End SOFR Swap Rates – Year-To-Date 2026

Source: Bloomberg, LLP | 5Y (green), 7Y (purple) & 10Y (light blue) SOFR SWAP RATES; YTD 2026

CHART 2B: US Treasuries: Yield Overview – Year-To-Date 2026

Source: StreetStats | US Treasury Yields; YTD 2026 (30Y UST yield – top line; 10Y UST yield – middle line; 2Y UST yield – bottom line)

RCA Product & Pricing Update:

Product Spotlight: What We Are Seeing In The Rates & Derivatives Markets

The market is once again facing tremendous uncertainty surrounding the path forward for interest rates. Borrowers should be as nimble as possible in this market environment. Cap purchasers should onboard as quickly as possible – there is no cost to onboard. It is important to be in a position to take advantage of market opportunities quickly and efficiently.

Given the high-level of uncertainty surrounding forward rates, many clients are grappling with when or if to extend. This is a difficult question – our advice has been to monitor the market closely and be on-boarded and ready to trade, should the market move in your favor. We also advise borrowers to check the market pricing for extensions, similar to how you purchased the original cap. Market pricing discovery is a key component to any cap transaction – new caps, extensions or terminations.

There is an increasing interest in exploring interest rate swaps as a possible hedge alternative. IR Swaps lock in a synthetic fixed rate and do not require an upfront premium. Unlike an interest rate cap, swaps are secured derivatives, so the counterparty selection process is more challenging with a swap. There are also additional variables that factor into the decision to pursue an interest rate swap, or to unwind an existing swap. We are also seeing a dramatic increase in swap termination advisory requests recently, as clients contemplate refinancings. Lower rates have sparked refinancing activity, which in some cases necessitates unwinding an existing swap. Please let us know if you would like to learn more about interest rate swaps, or swap terminations.

We are still seeing some residual demand for interest rate floor indications – to offset high loan floors or simply to benefit from declining variable rates. Borrowers who have “floors” embedded in their loans have been considering purchasing a separate, stand-alone interest rate floor to offset the loan floor.

Interest Rate Cap Hub: Pricing & Volatility Update for 7/29/2026

• Current 1-Month SOFR = 3.74903%(Prior Day’s Reset: 3.73983%)

• Markets are bracing for today’sFOMC rate decision

• Rate volatility remains relatively subdueddespite the myriad market forces at work

• The swap curve remains flat – the 2’s/10’s swap spread is currently ~5.3 bps

Cap Pricing Matrix:1-Month Term SOFR Cap Premiums: Week-On-Week

*Indications as of Market Open. Premium levels provided are indications only and subject to frequent change.

CHART 3:Historical Volatility: MOVE (Rate Vol.- RED) and VIX (Equity Vol.- BLUE) – Year-To-Date 2026

Source: StreetStats | HISTORICAL RATE (MOVE) AND EQUITY (VIX) VOLATILITY – YTD 2026

^NOTE:RATE MARKETS CAN BE VOLATILE - MARKET DYNAMICS AND PRICING CAN CHANGE VERY QUICKLY IN THIS MARKET ENVIRONMENT.

**WE RECOMMEND YOU CALL US FOR ACCURATE, UP-TO-THE-MINUTE CAP INDICATIONS.**

Please contact us if you would like to discuss an upcoming rate cap or rate cap extension, explore ways to reduce or eliminate escrow deposits for replacement caps or learn more about interest rate Caps, Floors, Swaps or Swaptions. RCA can also assist you with the voluntary early termination of your cap or swap.

HedgeWithAnEdge-TheRCAEdge!

Disclaimer: The information provided in this communication is intended for discussion purposes only. Nothing presented in this communication should be taken as a recommendation or forecast. All market data shown is indicative only and subject to change depending on current market conditions. The information in this publication is confidential and is intended for the recipient only.