Key facts
- The Federal Reserve held interest rates steady at 3.50%-3.75% in Chair Kevin Warsh's first meeting.
- Nearly half of Fed policymakers now expect at least one rate hike by the end of 2026.
- The Fed removed its forward guidance, signaling a shift away from future rate cuts.
- May inflation was reported at 4.2%, above the Fed's 2% target.
- The U.S. dollar index reached a two-month high.
- Citigroup delayed its forecast for the first Fed rate cut to October 2026.
Global stocks experienced mixed reactions following the Federal Reserve's decision to hold interest rates steady, with new projections indicating a potential single rate hike in 2026 due to persistent inflation concerns. The U.S. dollar strengthened to a two-month high as markets increased bets on future rate increases.
The Federal Reserve, under new Chair Kevin Warsh, maintained its benchmark interest rate in the 3.50%-3.75% range. Nearly half of the Fed's policymakers now anticipate at least one rate hike by the end of 2026, a notable shift from previous expectations. This hawkish signal, coupled with May's inflation rate of 4.2%, above the Fed's 2% target, contributed to the dollar's rise.
In a significant policy shift, the Fed removed its forward guidance, signaling a move away from future rate cuts and emphasizing its focus on taming inflation. This change in approach by Chair Warsh, who also did not add his own rate forecasts to the "dot plot," has led money markets to fully price in a rate hike by October.
Despite the Fed's hawkish stance, optimism surrounding the reopening of the Strait of Hormuz following a U.S.-Iran agreement provided some support to markets, leading to a drop in oil prices. However, this was not enough to fully offset concerns about rising U.S. interest rates, which weighed on global equities. European shares dipped, and LatAm assets fell.
Citigroup has adjusted its forecast, now expecting the first Fed rate cut in October 2026, a delay from its previous projections. The dollar index climbed to 100.46, its highest level in two months, while the euro and pound saw slight declines against the greenback.