US Fed Keeps Interest Rates Unchanged but Signals Year-End Hike

In his first policy review since taking the helm from Jerome Powell, Federal Reserve Chairman Kevin Warsh led the FOMC to maintain the key interest rate within the 3.5% to 3.75% range. While the decision to pause was met with market expectations, the Federal Reserve issued a hawkish signal by raising inflation forecasts and projecting potential rate hikes before the year ends.

A New Era Under Kevin Warsh

The recent Federal Open Market Committee (FOMC) meeting marked a significant transition in US monetary policy leadership. Chairman Kevin Warsh, nominated by President Donald Trump, steered the committee toward a unanimous decision—the first such consensus in a year—to keep the federal funds rate unchanged.

Despite the pause, the Fed's stance remains cautious. The committee noted that while economic activity is expanding at a solid pace and job gains are keeping up with the workforce, "elevated uncertainty" persists, driven largely by geopolitical tensions in the Middle East. Warsh also appears to be signaling a shift in communication style, moving away from the directness of his predecessor toward a more measured, enigmatic approach reminiscent of former Chair Alan Greenspan.

Inflation Outlook and Higher Projections

The most striking takeaway from the meeting was the upward revision of inflation expectations. The Fed's Summary of Economic Projections revealed that price pressures are expected to linger much longer than previously anticipated. Notably, the central bank does not expect inflation to return to its 2% target before 2028.

Specific data points highlight the growing concern:

Potential for Year-End Rate Hikes

While the pause provided temporary relief to markets, the "forward guidance" regarding the future path of interest rates has been removed, leaving investors to rely on economic projections. The internal sentiment among policymakers is decidedly hawkish.

Van de 19 functionarissen die deelnamen aan de prognose-oefening, voorspelden er 18 dat er voor het einde van het jaar ten minste één renteverhoging zal plaatsvinden. Deze hawkish koerswijziging is een reactie op de realiteit dat de huidige inflatieniveaus onmiddellijke renteverlagingen riskant maken, aangezien een versoepelend beleid de vraag verder zou kunnen stimuleren en prijsstijgingen zou kunnen verergeren. Hoewel de ruwe olieprijzen daalden naar ongeveer $80 per vat na een voorlopige overeenkomst tussen de VS en Iran, blijft de Fed waakzaam voor aanbodschokken.

Belangrijkste conclusies