US | Fed pauses the rate-cutting cycle as the outlook improves

Summary

The inflation outlook still faces upside risks, as firms likely remain committed to passing tariff-related cost increases through to consumers, underscoring the need for the Fed to “keep [their] eye on inflation and not declare victory prematurely.”

Key points

• Key points:
• The FOMC kept the target range for the federal funds rate unchanged at 3.50–3.75% amid strong growth and signs of stabilization in the labor market.
• Forward guidance was left unchanged and continues to emphasize a cautious, data-dependent approach that leaves the door open to additional easing this year.
• In his Q&A, Powell noted that while upside risks to inflation and downside risks to employment remain, both have diminished, allowing for a wait-and-see approach.
• Today’s decision and Powell’s Q&A reinforce our view that the Fed is comfortably settled into a pause that is likely to extend through the first half of the year.
• Looking further ahead, we continue to expect that conditions will allow the Fed to deliver two additional rate cuts in the second half of 2026.

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