The Federal Reserve of the United States keeps interest rates in the range of 3.50%-3.75% at its July meeting, supported by the slowdown in inflation to 3.5% and the drop in unemployment to 4.2%. The conflict in the Middle East and rising oil prices keep the Federal Open Market Committee on alert.
The Federal Reserve of the United States (Fed) has decided to keep interest rates unchanged at its meeting this Wednesday, according to analysts consulted. The target range remains between 3.50% and 3.75%, a unanimous decision by the Federal Open Market Committee (FOMC) that reflects the favourable evolution of inflation and employment indicators.
Inflation in the U.S. slowed from 4.2% in May to 3.5% in June, while the unemployment rate fell to 4.2%. Job creation was lower than the previous month, but the labour market does not show wage pressures that fuel inflation, according to Christian Scherrmann, chief economist at DWS for the United States.
However, the conflict in the Middle East, particularly between the United States and Iran, has pushed oil prices to levels not seen in two months. This geopolitical instability introduces upward risks for inflation, along with decisions on tariffs. The Fed remains vigilant to these pressures.
Roger Rüegg, head of Multi-Asset Solutions at Zürcher Kantonalbank, notes that the June inflation figure, which was lower than expected, has eased pressure on the Fed. "It is unlikely that the second meeting under the leadership of its new chairman, Kevin Warsh, will be marked by significant events," he adds.
Despite the pause, the market discounts that the Fed will raise rates before the end of 2026. Cristina Gavín Moreno, head of fixed income at Ibercaja Gestión, believes that "the Fed will wait for greater visibility on growth, employment, and prices before starting a rate hike process." In her view, September would be too soon, and the increase would come in the last quarter of the year.
ING analysts, James Knightley and Chris Turner, anticipate that a brief FOMC statement and a press conference that avoids offering forward guidance will have little effect on market expectations regarding a 25 basis point hike in September. The communication from the new chairman, Kevin Warsh, could reduce information on the future direction of monetary policy.
For investors, the Fed's decision provides a breather in an uncertain environment. The stability of rates allows for short-term planning, but the threat of a hike before the end of the year requires close attention to upcoming inflation and employment data, as well as the evolution of the conflict in Iran.
The FOMC remains divided between those advocating for a more restrictive monetary policy and those who believe that it is not yet necessary to raise rates. The next meeting in September will be key to confirming whether the improvement in indicators consolidates or if geopolitical pressures necessitate tightening.
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