UOB forecasts the Federal Reserve will maintain current rates until 2027, citing subdued inflation pressures and divided FOMC views.
The Federal Reserve is expected to keep its federal funds target rate at 3.50%-3.75% at the July FOMC meeting, aligning with market consensus. UOB Global Economics & Markets Research projects an extended pause through 2026, with rate cuts resuming only in 2027 as inflation pressures ease.
OIS swaps indicate a roughly one-third chance of a 25bp hike at the July meeting. However, rates on contracts expiring next year fell by 5bps, reflecting reduced expectations for multiple hikes. Geopolitical risks and oil price movements could still prompt further tightening.
The Fed’s internal divisions and ongoing policy reviews may delay any shifts in monetary policy. Markets remain cautious amid mixed signals on the timing of future rate adjustments.