Federal Reserve: Prolonged pause with hike risks – UOB

UOB strategists observe that the Federal Open Market Committee (FOMC) kept the Fed Funds Target Rate at 3.50%–3.75% for a fifth meeting, with a 9–3 split as three presidents sought a 25 bps hike. Their base case is an extended 2026 pause before easing resumes in 2027, but they warn that persistent inflation and hawkish members keep renewed tightening risks elevated.

Fed holds but dissent and risks rise

"FOMC holds rates steady, but dissent grows: The FOMC left the Fed Funds Target Rate unchanged at 3.50%-3.75% for a fifth consecutive meeting, but the decision was split 9-3, with three regional Fed presidents voting for a 25bp hike."

"Our FOMC Outlook – Maintaining a prolonged pause in 2026 before resuming easing in 2027, with rising risks of rate hikes."

"Our base case remains an extended policy pause through the rest of 2026, supported by Warsh’s ambiguity and ongoing reviews of its monetary policy framework, before rate cuts potentially resume in 2027 as inflation pressures ease."

"However, the risk of renewed tightening remains elevated given persistent inflation and the hawkish tilt among some FOMC members."

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