The US Federal Reserve’s FOMC has reported today that it has decided to hold US interest rates in the current range of 3.5 to 3.75% in support of its dual mandate, and for the fourth straight meeting.
There has been much discussion and debate ahead of today’s Fed announcement, focusing more on it being the first Fed meeting led by new Chairman, Kevin Warsh than on the actual decision on interest rates itself.
While the decision itself was widely expected, attention was firmly on how Warsh, formerly an investment banker and previous member of the Federal Reserve Board of Governors, would frame the policy outlook at a time when energy markets and global politics continue to complicate the inflation picture.
Recent developments, including expectations of a US–Iran memorandum of understanding aimed at easing tensions and potentially reopening key shipping routes through the Strait of Hormuz, have added another layer of volatility for policymakers assessing the inflation trajectory. However, markets remain to be convinced that energy prices will return to pre-shock levels in the near term, keeping upward pressure on inflation expectations.
With US inflation still elevated and economic data showing continued resilience in both labour markets and consumer demand, the Federal Reserve opted to maintain its cautious stance.
Attention now shifts to the Bank of England’s Monetary Policy Committee, which is due to announce its latest interest rate decision tomorrow at midday, with UK advisers watching closely for any divergence in global monetary policy direction.
Industry experts have been sharing their reaction to today’s Fed decision to hold interest rates as follows:
Stuart Clark, portfolio manager at Quilter said:
“Kevin Warsh has kicked off his chairmanship of the Federal Reserve with a hold in interest rates, signalling the regime change that many expected may have to wait. Ultimately, Warsh and the Fed Board had little choice but to keep rates where they are. Despite the memorandum of understanding between Iran and the US now theoretically in place and energy prices initially retreating we remain unconvinced prices will retrace back to pre-war levels anytime soon. As such conditions for a rate cut remain non-existent and as such President Trump will likely remain as frustrated with the new leadership as he was with the old one.
“While growth has been downgraded, inflation remains very much well above the Fed’s target, with it currently at a three-year high of 3.8%, with even the averages remaining above target. This situation is entirely of the US’ own making and with energy prices likely to remain elevated relative to the start of the year, inflation isn’t going to suddenly begin to fall. In combination with better recent employment data and expectation beating consumer spending data this morning, it is not out of the realms of possibility that the Fed will have raised rates by the end of this year, instead of cutting them as was expected at the start of 2026.
“Going forward, Warsh will be under pressure to deliver at least one rate cut swiftly. Warsh is of the opinion that artificial intelligence will usher in a disinflationary period as productivity increases and the cost of doing things falls. This is a punchy prediction and could easily end up proving wrong given the current debates around return on investment from AI, but it may just be the cover he needs to begin the move to bring interest rates down and appease the President. Inflation, however, may prevent that from happening anytime soon though.”
Ed Hutchings, Head of Rates, Aviva Investors said:
“Although it had been fully expected, today’s decision to leave rates on hold was not the main attraction with the focus clearly being on the new Fed Chairman Kevin Warsh. How he manages his first Press Conference will be absolutely key but one thing investors can’t get away from right now is strength of the US economy. Recent data has further highlighted this with the limited impact of the Iranian war on the labour market. With just over one hike priced by the Fed, this seems to understate how much they may end up needing to do. The longer interest rates are left unchanged, the more the Fed could end up doing, even potentially removing all of the cuts delivered in 2025, if not more.”
Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley), said:
“There is also a very recent offsetting factor to upward inflationary pressures. Oil prices have eased following the recent US-Iran agreement and the prospect of a reopening of the Strait of Hormuz. If sustained, that could help put a lid on inflation pressures and reduce the need for a more forceful policy response.
“For investors, the challenge is not simply inflation. It is a wider range of potential outcomes driven by geopolitics, policy decisions and structural shifts such as artificial intelligence. That makes diversification increasingly important as a way of ensuring portfolios are exposed to different sources of return while reducing reliance on any single theme or scenario.“
Richard Flynn, Managing Director at Charles Schwab UK said:
“Today’s decision reaffirms the Fed’s orthodoxy in maintaining a data led approach which should provide some reassurance for investors, particularly in bond markets.
“Last week’s inflation figures, showing consumer prices rising to 4.2% in May, suggest the geopolitical backdrop is starting to feed more clearly into the economic outlook. Energy remains the key driver, reflecting the continued disruption to supply through the Strait of Hormuz.
“For markets and policymakers, the key question is how persistent this shock proves to be. Historically, energy-led inflation spikes can fade if supply normalises; however, a prolonged period of disruption increases the risk of second-round effects on wages, expectations and broader pricing dynamics. This leaves the Federal Reserve in a difficult position; inflation is moving further above target, but tightening policy in response to an externally driven shock risks adding unnecessary pressure to growth.
“In the near term, we expect the Fed to remain cautious, with policy likely to stay on hold until there is clearer evidence on whether inflationary pressures are becoming more entrenched. In that context, the new Chair is unlikely to be in a position to begin easing policy in the near term, despite expectations in some quarters that leadership change could bring a shift in direction.”
According to Isabel Albarran, Investment Officer at Trinity Bridge, changes to the outlook going forward are notable as she comments: “The question on everyone’s lips going into the meeting was – will the Fed’s updated forecasts indicate hikes rather than cuts and, if so, how many. Market expectations for future path of US interest rates have shifted higher over recent months, with one now hike priced over the next twelve months, where cuts had previously been forecast.
“The new forecasts indicates that half of FOMC members anticipate a hike this year, more than the market likely expected, with the median rate forecast drifting up to 3.75% from 3.4% in March and only falling modestly in 2027. The statement also dropped wording that suggested further easing could be on the table.
“Overall, the market has taken this decision as a hawkish move, showing that, despite recent developments between Iran and the US and subsequent fall in oil price, FOMC members remain concerned about the persistence of inflation.”
