The Fed Is Paralyzed, But Could Doing Nothing Be A Dangerous Move?

Plus: A Paramount Pause as Judge Intercedes in Warner Bros. Merger

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Cheddar's Big Business This Week
July 23, 2026

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The Federal Reserve’s Open Markets Committee meets next week, as pressure on the U.S. economy ramps up. Rising oil prices and new tariff threats would suggest the committee might raise interest rates. At the same time, stagnating employment and home sales suggest a rate cut by the committee could help the economy. Gah! It’s the perfect recipe for Fed paralysis. And yet doing nothing in this situation could also be a bad move.  

To understand the competing pressures on the Fed, Big Business This Week editor Peter Green spoke with economist Rebecca Homkes, a lecturer at the London Business School. 

Will we see a rate shift after next week’s meeting, and which way will it go? 

That depends on several factors, but no move is most likely in the near term.

Why is that?

The Fed has a dual mandate: Maximum employment, or the highest level of employment or lowest level of unemployment that the economy can sustain in the context of price stability (benchmarked at 2%). When inflation heats up, central banks raise interest rates; this increases the cost of borrowing and makes purchases more expensive. The result should be a decrease in spending and thus a decrease in demand. As demand falls, given the basics of supply and demand, the prices of goods and services will fall, so inflation should lessen. The reason for inflation matters. If inflation is driven by demand shocks, for example, stock market wealth causes consumer spending to surge and there is more demand than supply then prices will rise. Central Banks can target this by increasing interest rates, which should slow spending until inflation tapers off. When prices are going up due to a supply shock, for example, supply chain disruptions post Covid or energy disruptions, then prices rise for companies and consumers.  But supply shocks can cause reduced economic activity as higher costs lead firms to cut back on hiring or investment. If a central bank moves rates too much to counter inflation, this can worsen an already slowing economy. Occasionally this leads to stagflation, which is the disaster scenario when economic growth is slowing at the same time as spiking inflation. When the economy slows for other reasons, central bankers can reduce the rates to encourage more borrowing among banks. Banks should also pass on these lower rates, which would show up in business loans, autos, or mortgages. This should spur the economy – hopefully without spiking inflation. 

What is the Fed looking at right now? 

We have a U.S. economy that is stressed but not distressed, and the data is sending mixed signals. At the onset of 2026 both sides of the Fed’s dual mandate were moving in the wrong direction, albeit slowly. While stagflation fears have abated, we still show signs that the Fed will continue to do nothing: But in the current environment, doing nothing is doing something. The employment reports from the past few months have been steady but split: A few industries continue to hire strongly, a few industries continue to shed, and the rest remain flat. More than ‘low hire, no fire,’ we are seeing a lack of dynamism in the labor market. It’s hard to argue a few quarter points on the rate will shift a labor market that’s mostly in paralysis due to economic and geopolitical uncertainty, changing demographics, and technology shifts rather than lack of capital.  

But inflation is slowing, isn’t it?

Inflation may be cooling, but since the latest report, the disruptions in the Middle East have changed the energy picture. The Fed will be watching core PCE closely (the Personal Consumption Expenditures price index—this is the measure of inflation the Fed watches; unlike CPI, or the Consumer Price Index, that measures the prices of a basket of goods, PCE measures what consumers actually buy), but the June data will be largely discounted given its lagging factor, and the July data will come too late for this meeting. A Fed governor can make a credible argument for a slight hike to get ahead of inflation or a slight cut to stimulate a rather stagnant job market, but both justifications demand looking into the nuanced storyline data rather than the topline headline numbers.  Without a significant shift, staying steady is the most likely course of action for the Fed, especially in the July meeting where we have a longer gap between decision dates. Punchline: Expect a lot of debate but unless the data swings sharply, rates will remain where they are for the near term. 

How are Trump-related factors like tariffs and oil price shifts related to the war in Iran affecting inflation, employment and rate cuts?

Chaos has a cost, and unfortunately this cost passes down to businesses and consumers. For the Fed, geopolitical tensions, policy uncertainty and supply-side shocks are the new normal, which means forecasting is more difficult and both sides of their mandate get affected. When uncertainty is the new certainty, the Fed’s mandate gets challenged. Uncertainty stifles growth directly and indirectly. Not knowing if there will be more tariffs or tensions causes paralysis in hiring. Businesses want to keep waiting until they know more. The challenge is that small rate cuts do not counteract the prevailing force of paralysis, so the Fed is limited unless they make more dramatic cuts. Deeper interest rate cuts to spur economic movement are dangerous in a world of tariffs and tensions, as these create supply-side shocks where fewer goods are meeting demand. This causes prices to increase, as we saw from tariffs and we are seeing now with disruptions to the energy market from the war in Iran.  

So the tariffs are hurting the economy? 

Tariffs are a tax, and someone needs to pay them. While individual companies can strategically reduce their chaos tax, the Fed has a more limited role in reducing the cost of chaos. Interest rates are a crude tool for a complicated world: They are not a miracle that can clean up the messiness of fiscal policies or years of economies muddling along. They are not uniformly effective, and why a cut or hike is warranted matters more than the percentage point of cut differential. As a tax, tariffs are a messy tool with limited effectiveness that only comes when applied in strategic and focused ways. Most of the administration’s latest announcements are not either, and many will not be fully enacted.   But just the announcements can change consumer and business behavior, so they cannot be ignored. So far the Fed has signaled they are more concerned about the inflationary effect of uncertainty, which gives more argument to rates staying still for longer or even going back up.  

How does this all tie in to what we are learning about the new Fed chair, Kevin Warsh?

Kevin Warsh’s first press conference made news more for the fact he signaled he did not want Fed governors making any news going forward than anything else he said. There was concern that Warsh would argue for dramatic rate cuts given his passion for the role of AI in stimulating the economy. How much AI and its technological gains will lead to a once in a generation productivity shift is highly debated. Economic theory suggests that if these productivity gains are to come, central bankers should be cutting now to avoid slowing the economic boom to come. AI and technological gains could also be inflationary, such as through higher energy prices from data center demand, constrained supply leading to higher pricing, or workers demanding more wages now in anticipation of future productivity gains. If it’s going to be inflationary, central banks should be increasing rates now to prevent inflation spiking too quickly. Economic theory also says productivity gains are less inflationary when they are a ‘surprise’, as workers do not demand higher wages now and consumers do not spend more now in anticipation of the future effects. AI isn’t a surprise, and so far we have limited data showing AI is boosting anything outside individual worker efficiency: Organization-wide productivity gains are still case studies, not trends.

What does this perspective mean for consumers with credit cards and mortgages?

Consumers and small businesses should not be hanging on for any gifts from lower interest rates in the near term unless tensions calm and prices cool even more, and the job market goes from shaky to shrinking. But if the job market shrinks, that would signal a worsening environment that an interest rate cut is taking you into. 

This conversation was edited for length and clarity.

—Peter S. Green

(Polymarket)

Big Businesses mentioned this week

This week, big business!

War Story

  • Oil is back to $100 a barrel. Missiles have a predictable and synchronized effect on the price of oil: When the missiles go up, the price of oil also goes up. This time, Houthi rebels in Yemen fired on a pair of Saudi tankers transiting from the Red Sea to the Indian Ocean. Fears that the Bab-al-Mandab strait will be unsafe for shipping sent oil prices soaring above $90 a barrel on Wednesday, and up to $100 on Thrusday. If the strait is closed, Saudi oil will have to go through the Suez Canal, adding time and cost to exports to Asia—and the largest tankers can’t fit. What’s the lesson to be drawn from all this? All that earlier hope of a “short war” with minimal economic impact is slamming into the escalating war talk from Washington and Tehran. Comments on Wednesday from President Trump threatening further violence against Iran, and a comment from Sec. of State Marco Rubio that Iran is “not serious” about peace talks, helped push up the prices. And despite some bright points, like U.S. insurers charging drillers lower premiums to hunt for U.S. oil, there are more negative signs than positive ones. Gasoline is back above $4 a gallon, averaging $4.09, up from $3.15 a year ago. More pressure is coming: European gas prices have doubled since the war began, raising concerns about how the continent will stay warm if the winter turns bitter, and countries across the world have begun rebuilding strategic reserves to buffer themselves from another oil shock. With all this going on, Goldman Sachs $GS ( ▼ 2.01% ) estimates that if the Strait of Hormuz remains closed (or even just sporadically open), oil could reach $120 a barrel.

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The Usual Suspects

  • Paramount Pause: A federal judge has temporary halted Paramount’s $PSKY ( ▼ 2.73% ) $111 billion buyout (with debt) of Warner Bros. Discovery $WBD ( ▲ 0.17% ) , while she reviews a suit by 12 stat attorneys general who have sued to block the deal, saying the combined company would have too much market power, particularly over film production and distribution, and too much debt to be able to carry through on its promises to regulators to keep making films. “Audiences on every sofa and in every movie seat would feel the impact of this unlawful merger,” California AG Rob Bonta said. After President Trump said the merger would make CNN, now owned by Warner, “normal”, MAGA podcaster Katie Miller, who’s married to THAT Stephen Miller, said the lawsuit was “to protect CNN for the Liberals.” Bonta said spinning off CNN would not be enough to halt the suit. Courts generally move slowly, and the clock is ticking on Paramount. For every quarter the closing is delayed past October 1, Paramount owes WBD $650 million. Paramount shares are down 15% since a late June bump.

  • Pay me More, Pal: Online payments site PayPal $PYPL ( ▲ 0.88% ) has reportedly rejected a $53 billion bid from B2B payment provider Stripe $STRIZZX ( ▼ 1.36% ) and PE firm Advent Capital (with Twitter founder Jack Dorsey), saying it believes the firm is worth more than that to would-be buyers. Grafting PayPal’s consumer-facing business onto Stripe’s, and adding in PayPal’s Venmo cash transfer service could create a payment system that would process more than $3.7 trillion a year, competing more easily with Apple Pay $AAPL ( ▼ 1.52% ) and Google Pay $GOOGL ( ▼ 7.12% ) . But the board thinks the company is worth more, Reuters reports. Part of the appeal may also be PayPal’s stablecoin, $PYUSD ( ▼ 0.0% ) . PayPal presents second quarter earnings on Tuesday. Strong results will likely drive a higher price, but weak results could force the board to accept the lowball offer. Shares in PayPal have fallen about 82% since their 2021 peak, and closed Wednesday at $55.51, well below the Stripe offer of $60.50.

  • Kicked out of the House of Mouse: New Disney $DIS ( ▼ 2.82% ) CEO Josh D’Amaro keeps on cutting. Now come more layoffs at units including Pixar, despite the outta-the-ballpark success of Toy Story 5, which has grossed more than $957 billion so far, globally. According to Hollywood journal The Wrap, D’Amaro is afraid Pixar’s films are too costly, even when they do make a profit. At Pixar, 114 jobs will be cut, with more cuts coming at ESPN. In another sign of changing times at the house of Mouse, Disney and troubled ketchup-maker Kraft-Heinz $KHC ( ▼ 2.31% ) have inked a deal that’s going to have Star Wars lightsabers dispensing exclusively Heinz ketchup at Disneyland. Under the agreement, Kraft-Heinz becomes the exclusive condiment, cream cheese, and mac ‘n’ cheese purveyor to Disney, and Disney will let the food company use its characters. The two will also “create content” together. Kraft-Heinz has seen sales decline for the past 10 quarters, and the Disney hookup is part of a broader offensive by new Kraft-Heinz CEO Steve Cahillane. No word yet on when Elsa Frozen popsicles will drop. Shares in Disney are down 45% in the past five years and down 16% in 2026. Perhaps it’s time the company bought some more IP. That’s usually how it bolsters its stock price over the medium term.

  • Football has been very, very good to FIFA: (And to Adidas $ADDYY ( ▼ 5.13% ) and Kalshi $KALSZZX ( ▼ 0.7% ) and Polymarket $PLYRZZX ( ▼ 0.33% ) and World Cup host cities, too). It may have been one of the most complained-about World Cups since the global soccer battle began in 1930, but it was also one of, if not the most profitable cups for both soccer’s governing body, FIFA, and for host cities, which largely relied on existing stadiums, hotels and transit systems to host the games. But FIFA found a million ways to make a buck (more than $15 billion, actually). Want to buy a ticket? Buy a FIFA cryptocoin first (total profit, $10 million), Want a ticket to the final? The cheapest top ring seats at the Meadowlands were priced at $2,790. But if you couldn’t make the game, you could resell your ticket on FIFA’s own resale site, which charged 15% commission to the buyer and another 15% to the seller. There are also 2,000 championship rings (an idea FIFA borrowed front he NFL), you can buy a square foot of turf from one of the FIFA stadiums for only $3,000 (FIFA expects to cash in about $11 million). Not a bad haul. While Spain walked away with the trophy, and some bruises from its final brawl with Argentina, other winners included the prediction market sites Kalshi and Polymarket, which together took bets worth at least $5.7 billion on the final. Adidas, which sponsors both Spain and Argentina, said it expected World Cup-related sales to top $1.7 billion, and its visibility is giving it an edge on top rival Nike $NKE ( ▼ 2.87% ) .

  • F is also a letter of the Alphabet: Google parent Alphabet $GOOG ( ▼ 6.88% ) has been a stock market darling for so long, it should get a grade of A for investability. But second-quarter results released on Wednesday sent shudders through the market and raised fears that this could be the first breach in the dike of debt holding up AI. While cloud revenue grew 82%, to $24.8 billion, which should have been great news, for the first time ever, capital spending (capex) exceeded free cash flow by $5.9 billion. That’s a major shift for Google, which used to generate so much cash it held regular share buybacks. Now, it’s issuing new shares and debt to build AI data centers. In Q2, Google raised $49.6 billion in equity and $20.3 billion in bonds just to fund AI infrastructure. And to beef up its credit rating, Alphabet booked $77 billion in anticipated revenue from the eventual sale of its Anthropic $ANTHZZX ( ▲ 0.22% ) stake. That’s not real money; it’s a bet on Anthropic’s IPO following the initially positive path of SpaceX’s $SPCX ( ▲ 0.86% ) (although the company is now trading at $115, below its IPO price of $135). In other words, Google is making a bet on AI that’s so big, it can’t afford for the bet to fail. Alphabet shares are down more than 8 percent in the past week, and were down considerably on Thursday. In a move sure to anger President Trump, Google was also fined $1 billion (890 million euros) on Thursday by the European Union for abusing its dominant market position in search to squeeze out rivals.

(@HedgieMarkets on X.com)

  • Jersey Mike’s IPO: Jersey Mike’s, the New Jersey-based sub sandwich chain that’s exploded from a single Point Pleasant joint to 3,300 franchised operations with the backing of private equity firm Blackstone $BX ( ▲ 1.52% ) , is going public. The IPO will value the company at nearly $8 billion, and let Blackstone cash out some of its initial investment. But Blackstone will still have a majority of the company and all those voting rights. And no, the shares don’t come with extra peppers.

  • Uber Uber Europe: It’s Uber’s Hero now. Safety-challenged ride-share company Uber $UBER ( ▼ 2.02% ) is expanding its lucrative food delivery service with the $14.8 billion purchase of Germany’s Delivery Hero. The acquisition will give Uber a footprint in 50 more countries across the globe. Delivery services are consolidating. Last year DoorDash $DASH ( ▼ 4.48% ) bought the U.K.’s Deliveroo for $3.86 billion. Shares in Uber are down 21% in the past year, but up about 3% on news it has a new Hero.

  • Going Rogue: Two OpenAI $OPEAZZX ( ▼ 2.67% ) models teamed up to escape their sandbox, get on the internet, and together hack a library of AI programming tools called “Hugging Face,” last week. If this sounds too sci-fi for you, it is unfortunately a taste of things to come, and it’s got cyber activists concerned. But the backstory is even crazier. The two models were being tested, and they inferred that the library of AI models could teach them to pass their test. OpenAI says it’s fixing things.

Trumplandia

  • Venezuela’s missing billions: And they happen to be in the U.S. Treasury. An investigation by the Financial Times turns up a financial mystery: Where has Venezuela’s oil income gone? The U.S. State Department said about $3 billion has gone to Venezuela to pay government salaries and other authorized expenses, and the U.S. has promised another $386 million in aid to recover from last month’s earthquake, which is likely to come from the oil revenue. But some $10 billion appears to still be stuck outside the country, and U.S. lawmakers say they haven’t received any of the promised quarterly reports on the cash. When President Trump seized Venezuelan leader Nicolas Maduro in January, he promised to sell the oil at market price and ensure the funds were spent to benefit the Venezuelan people.

  • Just in case you’re keeping score: President Trump has threatened tariffs on generic drugs (mostly made in India with Chinese ingredients) that would come into effect and raise drug prices for consumers after the end of his second term. He’s also threatened 50% tariffs on everything in Canada, apparently because smoke from Canadian wildfires has been drifting over the US.

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Peter S. Green is a veteran reporter and editor who has spent more than two decades covering business and finance from Eastern Europe to New York City, and has worked for Bloomberg News, The New York Post, The New York Times and The Messenger. He lives in New York City and is always looking for the next big story. Email him here.