Commerzbank’s Bernd Weidensteiner anticipates that the Federal Reserve will maintain its policy rate at 3.50%–3.75% during the upcoming meeting, as policymakers closely monitor inflation risks [1]. The baseline scenario outlined by Weidensteiner assumes that the core Personal Consumption Expenditures (PCE) Price Index will gradually slow toward a 2% trajectory, which would allow the Fed to avoid further tightening and potentially begin cutting rates from mid-2027 [1].
However, recent geopolitical tensions in the Persian Gulf have contributed to a noticeable rise in oil prices, which could delay the decline in headline inflation during the summer months and increase the risk of second-round inflation effects [1]. Even if core inflation remains stable, these developments may postpone the achievement of the Fed’s 2% inflation target until spring 2027, given that the monthly increase in 2026 has averaged 0.35% so far [1].
While the debate over a potential rate hike has gained momentum, Commerzbank suggests that the Fed will likely seek more clarity on inflation trends before considering any increase in interest rates [1]. As a result, the central bank is expected to keep its key interest rates unchanged at the next meeting, with the possibility of avoiding further hikes in the second half of the year if inflation moderates [1].
Looking ahead, if inflation continues to ease as projected, the Fed could begin lowering its policy rate starting in mid-2027 [1].
CONCLUSION
Commerzbank expects the Federal Reserve to keep rates steady at its upcoming meeting, with future policy moves hinging on inflation developments. While higher oil prices present upside risks, rate cuts are not anticipated until mid-2027 if inflation trends remain favorable.