FOMC preview: Fed to stay on hold after June’s hawkish shift
At a Glance
The desk anticipates that the Federal Reserve will maintain its current policy stance during the upcoming FOMC meeting on July 28-29, 2026, refraining from rate hikes despite elevated market expectations fueled by rising oil prices. Per the full note from ING, softened inflation and labor market data have diminished the urgency for action, leading to a shift in market sentiment from roughly 80% likelihood of a rate increase to no hikes being priced in. Key indicators such as the June CPI at 0.1% versus expectations of 0.4% and disappointing non-farm payroll growth of just 57,000 underscore this cautious outlook. As seen in our internal research, the consensus target for EUR/USD reflects a level of 1.16, aligning with the Fed's cautious tone.
Key Takeaways
- 01Fed likely to maintain policy at July meeting, countering prior rate hike expectations.
- 02Recent economic indicators show inflation at 0.1% vs. expected 0.4%, with labor data disappointing.
- 03Market consensus for EUR/USD at 1.16 supports a cautious Fed stance, with internal forecasts aligned.
- 04Divergence in firm opinions reflects uncertainty in future rate movements across the USD and JPY.
Full Analysis
What the desk is arguing
The desk believes the Federal Reserve’s decision to hold rates steady is supported by recent economic indicators, particularly the lower-than-expected inflation prints for June. The FOMC’s recent Beige Book indicated a muted price inflation environment, which, along with soft labor data, suggests less need for immediate policy tightening. As highlighted by ING, the stronger labor market expectations had previously led markets to anticipate a more aggressive Fed, but the changes in the economic landscape have altered that narrative significantly.
Moreover, the conflicting projections among FOMC participants, with some still expecting a hike by December, illustrate the uncertainty that currently permeates Fed policymaking. The primary economic indicators influencing this decision are the cooler inflation metrics—particularly the CPI and PPI—and the slowdown in job growth, as emphasized in the source commentary.
Where it sits in our coverage
Our current consensus target for EUR/USD stands at 1.16, with a range spread from 1.12 to 1.20 as predicted by firms. Noteworthy targets include: - Goldman: Mar26 1.1800, Dec26 1.1200 - BofA: Mar26 1.1700, Dec26 1.1500 - Commerzbank: Mar26 1.1900, Dec26 1.2200
The desk’s outlook aligns closely with the market consensus, landing towards the upper spectrum of forecasts. Given the present trading value of 1.1419, the market currently leans towards a more cautious approach which is reflected in our analysis and the broader consensus, reinforcing the notion of holding patterns from both the Fed and market participants.
How other firms see it
Aligning with this cautious outlook are firms such as Goldman and BofA, indicating their respective targets for EUR/USD as indicative of a hawkish yet measured stance from the Fed. On the contrary, firms like Commerzbank hold a more aggressive position, hinting at a potential for stronger currency movements based on rate adjustments. In particular, the interplay between expectations for the Fed and the anticipated ECB response emphasizes broader market dynamics.
With implications for USD/JPY also looming, the recent Fed commentary alongside the BoJ's own policy adjustments creates a complex narrative as both central banks navigate their inflationary environments.
Market Implications
Traders should monitor the EUR/USD around the 1.16 target, with the Fed's stance influencing broader currency movements. Any shifts in market sentiment ahead of the FOMC meeting could lead to volatility, especially if inflation data trends unexpectedly change.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
BNP Paribas | Bearish | 1.1500 |
UBS | Bullish | 1.1800 |
UOB | Bullish | 1.1800 |
From the original
Articles FOMC preview: Fed to stay on hold after June’s hawkish shift Published 09:41 United States Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download While the recent surge in oil prices has led markets to increase their expectations of a Federal Reserv
Related speeches
4 itemsWhy we don’t think the Fed will hike rates
The desk believes the Federal Reserve is unlikely to hike rates based on the diverging perspectives within the FOMC and a favorable inflation outlook over the next year. Per the full note by James Knightley, the Fed's dual mandate of maximizing employment and maintaining price stability requires a cautious approach, especially given the current softness in job creation and the housing market. Despite a hawkish tone from half of the FOMC members, the remaining members' skepticism coupled with improving inflation metrics supports our stance for a lengthy pause in rate hikes. The consensus within the market is significantly swayed by these internal dynamics as investors currently anticipate a 25 basis point hike by October 2026 but our position emerges firmly on the side of inaction.
FX Daily: As hawkish as it gets
Per the full note from ING, the September FOMC delivered everything a dollar bull could ask for: a 25bp hike, a dot plot with 12 of 18 members projecting one more move this year and four projecting two, and upward revisions to growth and inflation with a lower unemployment rate. Chair Kevin Warsh explicitly framed policy as having reduced a 'dose of accommodation' rather than being restrictive, which ING reads as a freedom signal: markets can fully price October (currently 13bp) and December (32bp) without the Fed pushing back. DXY rose 0.6% to a two-month high and the two-year USD swap rate jumped 10-12bp, and ING's conclusion is that EUR/USD downside risks remain with oil and risk sentiment in the driver's seat. Our own consensus sees EUR/USD at 1.1700 for Mar-26 (range 1.1200-1.2000) and USD/JPY at 155.00 for Mar-26 (range 149.00-161.71), so ING's hawkish dollar read sits against a consensus that still expects a modestly stronger euro and a modestly stronger yen over the next six months. With no high-impact events scheduled in the next 30 days for these jurisdictions, the near-term path is driven by the residual hawkish impulse and the oil price, not by scheduled data.