Investing.com -- The Federal Reserve is unlikely to raise interest rates this summer, despite speculation, according to Wolfe Research.

Analyst Stephanie Roth wrote in a note to clients on Tuesday that while the economy “should remain solid this year,” risks to rates are “increasingly skewed to the downside following the recent repricing.”

Roth notes that inflation remains above the central bank’s 2% target, with “meaningful upside risk to headline and more modest upside risk to core.”

However, she argues that the labor market backdrop this summer will not support a hike, even as markets price in rising odds.

According to Wolfe Research, seasonal dynamics and the “ongoing impact of AI” will make the labor market appear soft enough for the Fed to stay on hold.

“We think the bond market is too hawkish and see almost no chance of a hike,” Roth writes. She adds that if the conflict in Iran continues for several more weeks, demand destruction could begin weighing on growth, compounding labor market softening already underway.

Wolfe Research also highlights the significant shift in market expectations. Pricing currently implies “~30% odds of a hike by October,” a sharp reversal from “yesterday morning’s >80% odds.”

Before the war, expectations for the terminal Fed funds rate were about 3.0%, compared with roughly 3.4% today.

Roth expects the unemployment rate to end the year near current levels, assuming some resolution to the conflict. But she warns of “upside risk to the unemployment rate over the summer,” reinforcing the case for the Fed to remain patient.