The Federal Reserve removed its easing bias and raised 2026 rate projections, signaling a prolonged hawkish policy to combat inflation.
The Federal Reserve kept the federal funds rate unchanged at 3.50% to 3.75% on Wednesday, but the decision marked a sharp pivot toward a hawkish policy. The Federal Open Market Committee (FOMC) voted unanimously to hold rates, a shift from the 8-4 split in April, and removed language suggesting future easing. The statement now emphasizes restoring price stability without referencing the timing of future moves.
The updated Summary of Economic Projections (SEP) underscored the hawkish turn. The median 2026 federal funds rate projection rose to 3.8% from 3.4% in March, signaling a potential rate hike rather than a cut. Inflation forecasts also climbed, with the 2026 Personal Consumption Expenditures (PCE) projection jumping to 3.6% from 2.7%, and core PCE rising to 3.3%.
The US Dollar Index (DXY) surged following the announcement, breaking above 100.00 to a session high. Analysts now view 100.50 and 101.00 as key resistance levels, with a drop below 100.00 potentially invalidating the breakout. Markets await Fed Chair Kevin Warsh’s press conference at 18:30 GMT for further clarity on the policy outlook.