Fed Sparks Rate Cut Fears with Hawkish Interest Rate Hike

The US Federal Reserve has surprised investors by raising interest rates and projecting a prolonged period of high interest rates, sparking concerns that rate cuts may be further off than expected.

UBS, a Swiss bank, described the move as a 'hawkish hike,' with the Fed's dot plot indicating one more rise in interest rates this year followed by a hold near 4.1% throughout 2027 and only modest cuts to 3.6% by 2029.

The central bank lifted its target range by a quarter point to between 3.75% and 4%, with the Fed's inflation forecast for this year nudged up to 3.7%. Despite this, officials still expect price growth to return to the 2% goal by the end of the decade.

UBS expects Fed Chairman Kevin Warsh to reinforce the point with a tough, inflation-fighting message, which would be a surprise to investors who had been betting on a swift run of interest rate cuts.