Federal Reserve, central bank USA, decided to maintain interest rates in the range of 3.50–3.75%. What's next? Fed members forecast only one rate cut in 2026.
Continued below the video:
During the previous meeting, the Fed lowered interest rates. by 25 bp. During this monetary easing cycle, the Fed lowered interest rates by 150 basis points.
However, since the end of February, there has been great volatility in the financial markets. As a result of the US and Israel attack on Iran and the blockade of the Strait of Hormuz, oil prices jumped to over $100. per barrel
Under conditions of greater inflationary pressure, the market began to price in that central banks would reduce interest rates more slowly (low rates can fuel inflation). After the attack on Iran, at some point the valuation of rate cuts in the US, expected in 2026, almost completely evaporated.
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The Fed didn't listen to Donald Trump on interest rates
President of the USA Donald Trump, who nominated Kevin Warsh to be the next Fed chairmanhas repeatedly attacked current boss Jerome Powell for not cutting interest rates faster.
After the start of the war in the Middle East, Trump again attacked Powell, demanding an immediate rate cut.
The US president called for an “extraordinary meeting” of the Fed and said that the rate cut should take place “now.”
See also: Donald Trump didn't see this coming? “It won't bear $100 per barrel”
Interest rate cuts in the US – forecasts
The Fed presented new quarterly macroeconomic projections and a dot chart, the so-called dot-plot, showing the forecast of the path of interest rates according to Fed members.
The FOMC forecasts interest rates at:
— 3.4 percent. at the end of 2026 (one reduction)
— 3.1 percent at the end of 2027 (one reduction)
— 3.1 percent at the end of 2028 (no reductions).
The next Fed meeting is scheduled for April 27-28.
How does the Fed justify its decision?
“Uncertainty about the economic outlook remains high. The impact of events in the Middle East on the U.S. economy is uncertain (…). The Committee is committed to supporting maximum employment and a return of inflation to the 2% target,” we read in a statement after the meeting.
“Available indicators suggest that U.S. economic activity is expanding at a solid pace. Employment growth remains low and the unemployment rate has remained virtually unchanged in recent months. Inflation remains somewhat elevated,” we read further.
