United States: Central Bank keeps rates steady in June
Latest bank decision: At its 17 June meeting, the Central Bank kept the target range for the federal funds rate at 3.50–3.75%, following 75 basis points of rate cuts from August to December last year. The decision was expected by markets.
Inflation uncertainty drives hold: The Fed decided not to continue cutting interest rates given economic activity was strong and inflation has moved further above the 2.0% target in recent months. On the flipside, a rate hike was premature given uncertainty on where oil prices will end up and that inflation is likely to decline later this year.
A hike is possible, though our Consensus is for rates to stay steady: The Fed’s June forecasts suggest the funds rate could be hiked later this year, in contrast to previous projections for monetary easing. Our Consensus is currently for the rate to end 2026 around its current level, though these projections could be revised up in coming weeks in light of the June meeting.
Panelist insight: On the outlook, ING analysts said:
“A clear hawkish shift from the Fed sees the committee split down the middle on whether they will hike rates or not this year. Sharp energy price falls are good news though, and we think an extended pause is the most likely outcome.”