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Fed held rates steady at 3.75% upper bound, aligning with expectations, while projecting cuts in 2026-2027 despite energy shocks and Middle East uncertainty.
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Statement saw only cosmetic updates with higher growth (esp. 2027) and inflation forecasts (sub-3%), but disinflation path to 2% target intact by 2028.
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Initial dollar weakened mildly (dovish signal); EURUSD moves tied more to energy prices than Fed tweaks.
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Fed held rates steady at 3.75% upper bound, aligning with expectations, while projecting cuts in 2026-2027 despite energy shocks and Middle East uncertainty.
-
Statement saw only cosmetic updates with higher growth (esp. 2027) and inflation forecasts (sub-3%), but disinflation path to 2% target intact by 2028.
-
Initial dollar weakened mildly (dovish signal); EURUSD moves tied more to energy prices than Fed tweaks.
In line with market expectations, Fed decided to keep interest rates unchanged with the upper bound of the key rate at 3.75%.
A key factor in the projections is the maintenance of expectations for interest rate cuts in 2026 and 2027, despite the recent supply shock in the energy market. The Fed points out in its statement the uncertainty related to the situation in the Middle East. It continues to emphasize elevated inflation (with an obvious risk of a rebound above 3% if oil prices remain above 100 USD per barrel). The Fed also highlights that the economy is growing at a strong pace.
Nevertheless, it should be noted that the statement itself has changed only cosmetically. This means that the Fed has not yet altered its approach to interest rates, which can be seen as slightly dovish (the dollar weakened in the initial reaction). In the macroeconomic projections, we see slightly higher growth forecasts (mainly for 2027) and a clearly revised upward inflation projection (though it remains below 3%). However, it should be noted that the trend remains downward, and inflation is expected to return to target in 2028, in line with previous forecasts.
Cosmetic changes in statement with added uncertainty about the Middle East. Source: XTB, Bloomberg
The Fed expects further cuts this year and next, but is revising its inflation projections upward for this year but maintaining its expectation of a decline to target by 2028.. Source: Fed
First reaction was negative for the dollar, but but the changes are still minimal. EURUSD is currently reacting primarily to issues related to energy prices. Source: xStation5
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