US | Fed emphasizes increased uncertainty as it stays on hold

Summary

The Federal Reserve maintained interest rates at 3.50-3.75%, citing elevated uncertainty due to the conflict in Iran. While growth projections were revised upwards, inflation forecasts also increased. The Fed will keep a cautious, data-dependent stance, pausing rate cuts until at least the second half of 2026.

Key points

• Key points:
• The updated Summary of Economic Projections revised median GDP growth higher across the horizon, reaching 2.4% for 2026, 2.3% for 2027, and 2.1% for 2028, driven by stronger productivity.
• Headline and core PCE inflation projections were revised up to 2.7% for this year, reflecting higher oil prices and sticky services inflation, while the unemployment rate path remained broadly unchanged.
• The dot plot shifted modestly in a hawkish direction, though the median path still points to one rate cut this year and another next year. The longer-run fed funds estimate edged up to 3.1%.
• Powell emphasized a wait-and-see approach regarding tariff-related disinflation and oil shocks, suggesting a resumption of easing would require a decisive weakening in the labor market.

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