Federal Reserve: Extended pause with 2027 cuts – UOB

UOB’s Suan Teck Kin and Alvin Liew analyze the latest FOMC decision, noting the Fed Funds Target Rate remains at 3.50%-3.75% for a fifth straight meeting despite three dissenting votes favoring a hike. They expect a prolonged policy pause through 2026, followed by two rate cuts in 2027, while highlighting elevated risks of renewed tightening as inflation stays above target.

Fifth straight hold, dissent rising

"As widely expected, the US Federal Reserve kept its Fed Funds Target Rate (FFTR) steady in the range of 3.50%-3.75% for the fifth consecutive meeting at the 28/29 Jul FOMC, but the decision was not unanimous (with a 9-3 vote). Dallas Fed President Logan, Cleveland Fed President Hammack and Minneapolis Fed President Kashkari dissented in favor of a 25-bps increase."

"As such, we continue to expect an extended period of rate pause for the rest of 2026 before resuming easing next year (1 cut in late-2Q 2027, and 1 cut in late-4Q 2027) as the transitory inflation (due to oil prices) fades as the most likely course of action, but keeping in mind the higher risks of policy tightening."

"The absence of forward guidance will put significantly greater weight on key economic data in shaping market expectations of Fed policy, especially inflation data."

"The next FOMC meeting will be on 15/16 Sep 2026 (Decision on 17 Sep, 2am SGT) with will be accompanied by an updated Summary of Economic Projections (SEP) including the Dotplot chart."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)