The Federal Reserve’s hawkish hold and upward revision of 2026 inflation forecasts triggered a sharp sell-off in the Australian dollar.
AUD/USD fell nearly 80 pips to a session low below 0.7000 after the Federal Reserve kept rates unchanged at 3.50%-3.75% but adopted a hawkish tone. The move followed a unanimous 12-0 vote, a shift from April’s 8-4 split, and the removal of an easing bias from the statement.
The Summary of Economic Projections (SEP) revised the median 2026 federal funds rate to 3.8%, up from 3.4% in March, while flipping the next policy move from a cut to a hike. The 2026 PCE inflation forecast also jumped to 3.6% from 2.7%, reinforcing the hawkish pivot.
Fed Chair Kevin Warsh signaled a broader communications overhaul, hinting at changes to the SEP and press conference frequency by year-end. The Aussie clawed back above 0.7000 but remained under pressure as traders digested the Fed’s shift.