Fed Signals No Aggressive Rate Hikes Ahead Amid Energy Price Risks

The US Federal Reserve has signaled that it will not embark on an aggressive tightening cycle, despite recent inflationary pressures. According to Axis Bank's analysis, the Fed is only projected to raise interest rates one more time, with energy prices remaining a key risk to inflation.

Following the FOMC meeting, the Fed unanimously raised policy rates by 25 basis points for the first time since 2023. This move was seen as a response to persistent inflationary pressures, but Axis Bank notes that the language used suggests the Fed is focusing on underlying inflation trends rather than headline numbers.

Axis Bank's analysis estimates that the Fed could skip an October hike and deliver only one more increase by March 2027, which contradicts market expectations of additional tightening. Energy prices are seen as a key risk to inflation, particularly amid the ongoing conflict in West Asia.