Fed keeps rates steady, taking 'the safe route' amid uncertainty

The U.S. Federal Reserve has decided to keep its benchmark interest rate unchanged, a move that senior economist Robert Bergqvist of SEB described as "taking the safe route in uncertain times." This decision comes amid escalating tensions in the Middle East and a significant focus on artificial intelligence companies.

Bergqvist noted that Fed Chair Kevin Warsh's decision to maintain the rate at 3.5-3.75% was not surprising and would have been "unfortunate" if it had been otherwise. He added that the door remains open for a rate hike in mid-September, by which time new forecasts might provide a better basis for decision-making.

The press conference following the decision indicated that Warsh is actively working to reform the central bank's monetary policy. Bergqvist highlighted Warsh's interest in modernizing aspects like communication, balance sheets, data collection, AI integration, and the inflation targeting framework. The outcomes of these initiatives are still uncertain, with more clarity expected later in the year as appointed working groups deliver their findings.

Bergqvist also observed that the Fed chair is adopting a more cautious approach, seeking information from the market rather than dictating policy direction. This stance, he suggested, might be influenced by the current global unpredictability and pressure from U.S. President Donald Trump for rate cuts, especially given high inflation and consumer prices affecting Americans.

The Fed's decision could indirectly influence Sweden's Riksbank, which is set to announce its own interest rate decision in three weeks. Bergqvist believes that any surprise from the Fed would have increased pressure on the Riksbank, which will also be closely monitoring the Fed's modernization efforts, given its global significance.