Fed Holds Rates as Oil Prices Pose Inflation Risks

The Federal Reserve is expected to keep interest rates unchanged at its upcoming meeting, with Commerzbank's Bernd Weidensteiner predicting a target range of 3.50%-3.75%.

Weidensteiner assumes core Personal Consumption Expenditures (PCE) Price Index will slow down towards a 2% path, allowing the Fed to avoid further tightening and possibly start cutting rates from mid-2027.

However, higher oil prices pose upside inflation risks, which could delay the decline in headline inflation during summer months and increase the risk of second-round effects.