FX.co ★ Fed retains hawkish edge on interest rates

Although the Fed left interest rates unchanged this June, keeping it in the range of 5.00% to 5.25%, it maintained a hawkish stance, potentially preparing for two more hikes this year.

The reason lies in inflation remaining far from the 2% target level, although recent data did show a decrease compared to last year's 40-year high. The central bank also warned of the risk of its resurgence, as recent indicators show moderate economic growth.

And since unemployment remained low in recent months while the number of jobs increased, the Fed stated that moderate rate reductions may only occur in 2024. Nevertheless, the bank will continue to closely monitor inflation risks.

With this, the latest forecast says the federal funds rate will reach 4.6% by the end of 2024, much higher than the March forecast of 4.1%. Then, it will remain elevated at 3.4% in 2025, compared to the previous estimate of 3.1%.

However, according to Zaye Capital Markets CIO Naeem Aslam, the Fed seems to be overly cautious, hoping to conclude the tightening cycle soon.