US | Fed emphasizes increased uncertainty as it stays on hold

Summary

A sooner resumption of easing would likely require either a more decisive weakening in the labor market or a faster-than-expected easing of tariff-driven goods inflation, potentially reinforced by a swift resolution of the current conflict in Iran.

Key points

• Key points:
• As widely expected, the FOMC left rates unchanged at 3.50-3.75%, with a broadly unchanged statement now citing uncertainty around the war in Iran.
• The updated SEP showed relatively limited changes, with participants largely expecting the main impact of the conflict to be on inflation.
• In the Q&A, Powell emphasized a wait-and-see approach, citing uncertainty around tariff-related disinflation and inflation risks from higher oil prices.
• Powell’s remarks reinforce the view that the Fed remains firmly on pause, with little urgency to resume easing in the near term.
• We continue to expect that conditions will allow the Fed to resume easing in 2H26, delivering two rate cuts and bringing the policy rate to a 3.00-3.25% terminal range.

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