A Quick Take on the Fed

We believe the Fed HOLDS tonight. Simply put, the data just does not support a hike.

SUMMARY I like to keep things simple. Separate the wood from the trees. And Russell Thompson with Fed watching being more art than science, a case can be made Chief Investment Officer for almost anything today (well maybe not a cut). We believe the Fed Hilbert Group HOLDS tonight. Simply put, the data just does not support a hike. PUBLISHED 29 JULY 2026 HILBERT'S CALL HOLD For the first time in six meetings we today have a “live” Fed. As I write this on Wednesday morning with a decision 12 hours away. Fed Fund Futures are predicting a 29.4% chance of a hike today. With a new Fed Chairman, who clearly is not a fan of dot plots and forward guidance, Fed Watchers are entering a new world trying to predict what this new Fed will do moving forward.

A More Hawkish Fed

Undoubtedly Chairman Warsh surprised markets at his testimony to the House and Senate in mid-July, appearing much more Hawkish than expected, and closing the window on Fed patience with elevated inflation. At the June Fed meeting the dot plots indicated a divided forward-looking Fed with a split 9 v 9 on Hold/Cut versus Hike by the end of the year. Statements from various Fed Governors since the June Fed Meeting have also been Hawkish. Cook and Logan were clearly Hawkish and while the vote was 12-0 to Hold at the last meeting, the market clearly believes that there is a significant chance of a Hike today. There are three very clear inflationary factors that are concerning the Fed and particularly Chairman Warsh as was pointed out in the July Monetary policy report. AI. Warsh has said many times that AI is meaningfully disinflationary in the medium term. But the Fed is clearly concerned by the inflationary impact from Hyperscalers pouring billions into datacentres, advanced chips, power infrastructure and related equipment. This is driving up 29 July 2026 prices. Governor Kashkari said on June 26 he was moving to a hike by year end, from previously being a cut, due to the inflationary impacts from the Middle East and other factors. The Dallas Fed have estimated the oil impact to be around 0.6% on Headline and 0.2% on Core for 2026 Q4. Headline CPI has climbed from 2.5% to a May peak of 4.2% since the outbreak of the war. Tariffs. Clearly an inflationary pull factor. The Federal Reserve FEDS note in April 2026 estimated 0.8% on core PCE prices and the Dallas Fed in March estimated the same. Table 1: Estimated contributions to US inflation FACTOR ESTIMATE MEASURE SOURCE AI / datacentre capex +0.2% Core PCE Goldman Sachs Oil +0.6% / +0.2% Headline / Core, 2026 Q4 Dallas Fed Tariffs +0.8% Core PCE Fed FEDS note, Apr 2026

Steady as She Goes

We still firmly believe the Fed should and will HOLD today. The inflationary data just does not support a Hike. 1. One year inflation expectations are falling (from elevated levels undoubtedly) The University of Michigan One Year inflation expectations have fallen 4.8% to 4.2% (July preliminary). Ten year inflation expectations have fallen from 3.9% to 3.3% currently. 2. Inflation break-evens are declining. Meaningfully. From highs in May of 2.5% Ten year break-evens are at 2.2% having declined throughout June. 3. US Inflation CPI printed cold for June in the July 16th release. 4. US Truflation is meaningfully lower than CPI and is currently very close to target at 2.1%. The new Truflation Warsh Index (more on that below) is still lower. The BEA Warsh Index which is comparable to PCE is at 2.61% while PCE is at 4.5% and the CPI Warsh Index is at 1.73% Compared to Headline CPI at 3.5%. 5. October Mid Terms. We believe Warsh does not yet want any sort of confrontation with President Trump so early on in his Chairmanship. Hiking before the Mid Term elections, an a very nuanced balanced inflation outlook is unlikely in the absence of accelerating inflation. 6. Liquidity is still tight in the US economy. Hilbert runs a real time global liquidity indicator (HGLI) via our agentic AI models. Currently that sits at 6.19 and 5,910.84 trillion of liquidity with a declining Z score. Therefore, while liquidity has stabilised in June and July, it is still materially lower than October of 2025 and is beginning to tighten again. With tight liquidity conditions a rate hike has some potential serious market stability implications. 2 29 July 2026 Source: Hilbert Group Research

What is Inflation?

We believe that Chairman Warsh believes that the current calculations of liquidity such as CPI, PPI and PCE are not fit for purpose. Technology has evolved to the extent that near real-time inflation numbers are possible and therefore he is highly likely to refine the methodology of looking at inflation. He needs to have confidence that any Fed miss on inflation is correctly calculating exactly what inflation really is and that it is timely and accurate. He is on the record as saying he wants to see; Greater use of alternative or “underlying” measures (he has specifically • highlighted trimmed-mean approaches that exclude extreme outliers). This approach mirrors the Truflation Warsh Index above. Better, more contemporaneous/real-time data sources and new technologies. • A dedicated task force on data and another on inflation frameworks as part of his broader • “regime change” agenda at the Fed. This type of more robust, “real time approach” clearly shows inflation that is much lower than that contained in the PCE and CPI numbers. In addition, the trimmed mean approaches clearly show at the very least that inflation is definitely not broad based in nature and is contained in some narrow volatile factors that may be better controlled in other ways than broad based rate hikes.

Market Reaction

Hilbert is calling for a Hold today. However, in the absence of a no change policy stance, Warsh is highly likely to reiterate his comments from July 14-15 to the House Financial Services and Senate Banking Committee, which were surprisingly Hawkish. He clearly wants to come over as an inflation Hawk and wants to potentially distance himself from any Trump contagion. So the market may not be out of the woods with a Fed Hold, especially if the dot plots break towards the Hawks, which is highly likely from Kashkari’s comments alone. 3 29 July 2026 Whether they improve quickly enough for Warsh is the key question for the next meetings. Table 2: Selected indicators INDICATOR LATEST PRIOR NOTE Implied probability of a hike today 29.4% — Fed Fund Futures Last FOMC vote 12–0 — Hold June dot plot 9v9 — Hold/Cut vs Hike by year-end 4.2% 4.8% July preliminary UMich one-year inflation expectations Ten-year inflation expectations 3.3% 3.9% Ten-year break-evens 2.2% 2.5% May high US Truflation 2.1% — Close to target BEA Warsh Index 2.61% PCE 4.5% Comparable to PCE CPI Warsh Index 1.73% Headline CPI 3.5% 6.19 — Z-score declining HGLI — Hilbert Global Liquidity Indicator Russell Thompson Chief Investment Officer, Hilbert Group 29 July 2026 HILBERT GROUP offer or solicitation to buy or sell any financial instrument, or a recommendation of any investment strategy. The views expressed are those of the author at the time of writing and are subject to change without notice. Investing in digital assets involves significant risk; is listed on Nasdaq First North Growth Market (HILB B). 4 29 July 2026