NEW DELHI, May 2: The US Federal Reserve is expected to hold interest rates steady through 2026, as persistent inflationary pressures and internal divisions among policymakers reduce the likelihood of any near-term rate cuts.
At its latest meeting, the Federal Open Market Committee (FOMC) kept the benchmark rate unchanged at 3.5-3.75pc for the third consecutive time.
The decision, however, was not unanimous, reflecting a split within the central bank. While some members favoured maintaining or even tightening the stance, others continued to support the possibility of rate cuts, underscoring uncertainty over the future policy path.
A key shift in the Fed’s outlook has been its stronger assessment of inflation. Policymakers now describe inflation as “elevated,” signalling growing concern that price pressures-particularly from energy-may remain sticky.
Recent data show a sharp rise in headline inflation, largely driven by surging fuel costs, even as core inflation excluding food and energy remains relatively contained.
Economic growth in the US continues, but at a slower and uneven pace. After a strong expansion in mid-2025, growth moderated significantly toward the end of the year.
Consumer spending and private investment remain supportive, while government spending and exports have weakened.
Manufacturing activity has shown resilience in recent months, and consumer confidence has inched up despite global uncertainties.
The labour market presents a mixed picture. While overall employment levels have improved and unemployment has edged lower, hiring trends vary across sectors.
Gains in areas like education and health services have been offset by job losses in trade, transport, and manufacturing, pointing to underlying softness.
Financial markets have responded to the Fed’s cautious stance with a firming dollar and rising US Treasury yields.
Expectations in the market suggest that rate cuts are unlikely this year, with even a small possibility of a rate hike toward the end of 2026.
Global factors, especially elevated oil prices amid geopolitical tensions, continue to weigh on the inflation outlook.
Higher energy costs are expected to keep pressure on both inflation and interest rates, complicating the Fed’s path toward easing.
The impact is not limited to the US. Persistently high oil prices could also push up inflation in countries like India, where policymakers may face pressure to tighten monetary policy if fuel costs remain elevated.
Overall, despite some signs of cooling in growth and labour markets, the Fed appears in no hurry to cut rates. With inflation risks still prominent and global uncertainties lingering, the central bank is likely to remain cautious, keeping borrowing costs higher for longer. (UNI)
Follow our WhatsApp channel
