The Federal Reserve’s decision on Wednesday to hold interest rates steady or hike them is one of the most unclear in years. Renewed tensions in the Middle East have pushed oil prices higher again, feeding the hawks’ worries that energy prices could translate into sticky, broad-based inflation and necessitate a rate hike.

At the same time, the latest inflation report showed prices cooled, giving the central bank some breathing room and bolstering the case to hold rates steady. Former Kansas City Fed president Esther George said there’s a 50-50 chance the Fed will either hold rates steady or raise them.

“The arguments you could create for them holding or raising seem pretty valid, but Kevin Warsh is not going to give you any tidbits to lead in the direction he wants to go,” George said in an interview. “It wouldn’t surprise me if they hiked by 25 basis points at this meeting,” George added. “The two-year [Treasury yield] is higher than the fed funds rate, so that may be enough to move people, but I think September is more likely in this sense.”

The bond market has signaled to the Fed that interest rates aren’t high enough, with yields across maturities for the two-year Treasury bond to the 30-year Treasury bond (^TYX) rising on inflation concerns and anticipation of a rate hike. The yield on the two-year, a leading indicator of the Fed’s interest rate policy, has sustained its place at 4% or higher since mid-May, indicating investors anticipate a 25 basis point hike this year.

Futures markets put the chances of the Fed holding rates at 62%, down from 87% on July 17, while chances of a hike have risen to 37%, up from just 12%. If odds are below 80%, there’s no conviction in markets, giving the Fed a window to hike if it wanted to.

Loretta Mester, former Cleveland Fed president, said she thinks the Fed will keep rates steady on Wednesday but that a couple of officials will dissent. “For sure, they’re going to be discussing if it’s time to move the interest rate up or not,” Mester said in an interview. “They’re going to have to ask themselves whether policy is at the right level to get inflation moving back down to 2%. Chair Warsh has been pretty vocal on saying that they’re not going to tolerate inflation.”

Officials prepare for a ‘good family fight’ as Chairman Kevin Warsh wants to bring the central bank back to an era with more opaque communications to markets — one that harkens back to former chair Alan Greenspan. Warsh has repeatedly said that he wants a “good family fight” in interest rate-setting meetings. He’s likely to get one this week.

At the Fed’s meeting in June, half of the officials expected they would need to raise rates this year, while the other half thought they could hold rates steady. Warsh didn’t show his hand and could tip the central bank in either direction. Minutes from the June meeting revealed that if inflation dissipates, most officials favor holding rates steady or eventually lowering them.

However, if inflation remains elevated due to a combination of stable job market conditions, strong AI demand, the Middle East conflict, and the effects of tariffs, almost all officials see the need to raise rates. Several officials, including Fed governors Lisa Cook, Chris Waller, and Philip Jefferson, have suggested they’re content to hold rates steady in July but would consider a rate hike if inflation doesn’t cool further.

Other officials, including Dallas Fed president Lorie Logan, believe the time is now to act. Logan said in a speech in mid-July that inflation has been too high for too long and does not appear to be on track to return to 2%. “I currently believe modestly higher interest rates would better balance the outlook and risks for the FOMC’s maximum employment and price stability goals,” Logan said.