With the US Federal Reserve set to announce its latest interest rate decision this week, markets are closely watching whether policymakers will keep rates on hold or signal that further tightening remains on the table. While a pause is widely expected, persistent inflation concerns, fluctuating oil prices, and geopolitical developments continue to complicate the outlook.
Ahead of this announcement, our spokespersons at Saxo Bank, Century Financial, Lunaro Market Ltd. and Elevate Financial Services have shared their expectations and what the decision could mean for global markets and investors in the months ahead.
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Hamza Dweik, Head of Trading (MENA), Saxo Bank
We expect the Federal Reserve to leave interest rates unchanged at 3.50%-3.75% at this week’s meeting, while maintaining a cautious and slightly hawkish tone. Inflation has moderated compared with earlier in the year, but the recent rebound in oil prices and ongoing Middle East tensions mean policymakers are unlikely to signal any near-term easing. Instead, the Fed is expected to emphasize its data-dependent approach and keep the possibility of further tightening on the table if inflation pressures emerge again.
For investors, the focus will be less on the rate decision itself and more on Chair Kevin Warsh’s messaging around inflation, energy prices, and the outlook for the remainder of 2026. Equity markets have shown resilience despite growing uncertainty. The S&P 500 recently finished broadly flat while the Dow Jones Industrial Average gained 0.5%, although technology shares have come under pressure amid concerns around AI spending and higher interest rates. The Nasdaq Composite declined 0.2%, highlighting how sensitive growth stocks remain to changes in rate expectations.
A Fed that pauses while retaining a hawkish bias could keep Treasury yields elevated and limit further upside in high-growth technology stocks. Conversely, any indication that policymakers are becoming more comfortable with the inflation outlook could provide support for equities, particularly within the technology sector, which has been the primary driver of US market gains over recent quarters. With the S&P 500 still trading near record levels and investors awaiting earnings from major technology companies including Microsoft, Meta, Apple and Amazon, this week’s Fed meeting could prove to be an important catalyst for market direction through the remainder of the summer.
For Gulf investors, the combination of the Fed decision, US technology earnings and oil prices will be more important than the rate announcement alone. While a pause is largely expected, the lookout will be whether the Fed signals that the next move remains a hike rather than a cut. That distinction could determine whether US equities can continue extending gains into the second half of the year or face a period of consolidation after a strong run.
Vijay Valecha, Chief Investment Officer, Century Financial
This week’s FOMC meeting is highly unpredictable as Chairman Kevin Warsh hasn’t revealed whether he favours a rate hike. Officials face sharply conflicting signals on growth and inflation. The Fed was evenly divided on further rate hikes at its last meeting. Warsh could tip the balance. In a no-guidance regime, the headline decision could remain unchanged while the meeting’s information content changes considerably. The signal may be in how many voters refuse to support the decision. Currently, the benchmark federal funds rate sits in a range of 3.50% to 3.75%.
According to the CME FedWatch tool, traders assign a 62% probability that the Fed will hold rates at this meeting. That has decreased since the start of the previous week, when markets assigned an 84% chance of a rate hold. Renewed Middle East tensions involving Iran have pushed oil prices higher, strengthening the case for a rate increase in 2026 to guard against more persistent inflation. At the same time, June inflation data came in softer than expected, and the labour market doesn’t show signs of overheating, supporting arguments to leave rates unchanged. The current economic data have been more favourable than what the Fed had in front of them in June. It would be strange for the Fed to respond to that set of data by hiking at the July meeting when it chose not to in June.
Warsh has repeatedly stressed over the past two months that the Fed must restore price stability and convince markets it has not accepted permanently higher inflation. However, he has not explained why current interest rates are sufficient to achieve that. Fed officials favouring another rate hike remain vocal, while some who currently support holding rates have indicated they could back tighter policy later this year. As a result, keeping rates unchanged may simply delay the debate until September.
Markets expect higher Fed rates by year-end, but disagree on how far tightening will go. Prediction markets largely expect one or two rate hikes, while SOFR options assign much higher odds to a more aggressive cycle. This suggests investors are increasingly hedging against the risk that the Fed may need to tighten more than expected. With less Fed guidance, markets are increasingly pricing their own policy path, though views remain widely divided.
Nick Spencer-Skeen, Senior Executive Officer, Lunaro Markets Limited
Markets are pricing approximately a 64% chance of a hold at 3.50%–3.75%, the rest for a 25bp hike, and that split has been jumping around over the past week rather than moving on anything domestic.
June’s economic data provided support for the Federal Reserve to keep rates unchanged core inflation cooled to 2.6% year-on-year, and payrolls came in at just 57k against a forecast of 114k. What’s kept a hike in play is the dot plot from June, half the Committee still had at least one hike pencilled in for this year, plus oil, which climbed sharply during the worst of the fighting and put the inflation improvement in doubt.
Since the de-escalation in tensions between the US and Iran over the weekend., oil prices have fallen sharply as the war premium unwinds. It’s a genuine move, not just noise, but Hormuz traffic hasn’t returned to normal and Iran’s denied any formal ceasefire, so it wouldn’t take much to send it back up. Geopolitical developments and their impact on oil prices may therefore prove to be a more significant source of uncertainty for the Federal Reserve this week than the recent economic data.
Madhur Kakkar, CEO and Founder, Elevate Financial Services
The Fed meeting is less about the rate decision itself and more about the tone of the statement and the message from Kevin Warsh. A hold is broadly expected, with markets focused on whether the Fed keeps the door open to further tightening or signals that policy is likely to remain restrictive for longer.
While inflation has eased from its peak, the Fed still has to balance that against resilient labor conditions and sticky underlying price pressures. At the same time, signs of slower growth make another hike less straightforward.
My sense is that the Fed will deliver a hawkish hold, keeping its options open without clearly signaling the next move. For markets, the tone of the message is likely to matter more than the decision itself, especially for the dollar, bonds and equities.
