The fed inflation outlook hardened after the FOMC kept rates at 3.50% to 3.75% and raised its 2026 inflation forecasts despite falling oil prices.
The committee left its target range unchanged on Wednesday. Meanwhile, the new chair cut the statement to about 130 words. The dot plot also shifted, showing the next move as a hike rather than a cut.
That stance came as crude prices dropped sharply. The source said the US-Iran deal pulled oil about 40% below its conflict peak. Brent traded near $78, while WTI stood near $75.
Fed Inflation Outlook Ignores Oil Relief
The Fed raised its 2026 headline PCE forecast to 3.6% from 2.7% in March. It also lifted core PCE to 3.3%. Because core PCE excludes energy, the move showed the committee saw inflation pressure beyond oil.
The statement described energy as one of several supply shocks in certain sectors. However, it did not treat energy as the main driver. That marked a clear choice at a time when lower oil prices could have supported a softer policy message.
Warsh reinforced that view in his remarks. He said inflation had been “running well ahead” of the 2% goal for “more than five years.” Therefore, his language framed inflation as a lasting issue rather than a short-term jump tied to geopolitics.
Dollar Reaction Follows Fed Inflation Outlook
Warsh also said the committee “will deliver price stability.” Still, the source said the main signal came from the projections rather than that line. The same projections showed total PCE inflation at “3.6 percent this year, 2.3 percent next year.”
That means the Fed did not signal permanently high inflation. Instead, it showed that cheaper oil alone would not bring inflation back to target this year. Additionally, the source said the committee rejected a softer narrative even as war risk faded, oil fell, and the White House wanted cuts.
For currency traders, the source said that was the key point. The dollar firmed even as oil prices fell. As a result, the market read the decision as a sign that lower energy prices would not, by themselves, change the Fed’s policy stance.
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