Fed to hold rates steady until impact of tariffs and Middle East conflict on prices seen — Bloomberg

Bloomberg columnist John Authers claims the US Federal Reserve (Fed) will stick to a wait-and-see approach until policymakers are confident Donald Trump's tariffs have not sparked a surge in inflation. The risk of a commodity price spike stemming from the Middle East conflict reinforces the case for holding rates steady.

The US central bank left borrowing costs unchanged at its latest meeting. Still, Bloomberg projects the federal funds rate to be between 3.0% and 3.25% by the end of next year. This implies more than two cuts that the Fed currently forecasts. However, Steven Englander of Standard Chartered believes central bank governor Jerome Powell could favor fewer cuts.

Additionally, accelerating US food inflation could also stand in the way of those two rate cuts by year-end. In May, the rate rose 0.3% month-on-month, the fastest since 2021. This uptick might have been triggered by tariff pressure, yet the escalation in the Middle East is an additional upside risk for food prices, says John Authers.