Fed Maintains Hawkish Stance as Rate-Cut Expectations Diminish
The U.S. Federal Reserve has signaled a more hawkish stance, raising interest rates by 25 basis points to between 3.75% and 4%. This decision was accompanied by stronger inflation forecasts and projections of higher-for-longer rates through at least the end of 2027. UBS noted that the Fed's dot plot now shows only one additional rate hike expected this year, followed by a prolonged hold near 4.1% in 2027 before modest cuts to 3.6% are projected for 2029. The central bank also raised its estimate of the longer-run neutral interest rate to 3.2%, indicating that higher rates may be necessary to bring inflation back down. The Fed's decision has dampened market expectations for near-term relief from high borrowing costs, with UBS suggesting Chairman Kevin Warsh will likely emphasize a firm stance on controlling inflation in upcoming remarks.
Topics: Federal Reserve Inflation Interest Rates Market Outlook