Investors betting on a swift run of interest rate cuts have been given pause, after the US Federal Reserve paired a rate rise with a markedly tougher message on inflation.
UBS, the Swiss bank, branded the decision a hawkish hike, arguing the Fed has fundamentally rethought how restrictive policy needs to be over the next three to four years.
The central bank lifted its target range by a quarter point to between 3.75% and 4%, in a unanimous 12 to 0 vote.
The sting in the dot plot
The bigger signal for markets lay in the projections rather than the move itself.
The Fed's dot plot pointed to one more rise this year, followed by a prolonged hold near 4.1% throughout 2027, with only modest cuts to 3.6% by 2029.
Policymakers also raised their estimate of the longer-run neutral rate, the level seen as neither stimulating nor slowing the economy, to 3.2%.
UBS read the forecasts as the committee behaving as though a funds rate above 3.5% is needed to force inflation back to target.
Not the dovish turn some wanted
In a surprise to the bank, the Fed nudged up its inflation forecast for this year to 3.7%, rather than trimming it.
Yet officials still expect price growth to return to the 2% goal by the end of the decade, helped by keeping rates high.
Growth forecasts were raised despite the tighter stance, and the outlook for jobs improved, with unemployment now seen at 4.1%.
UBS expects Fed chairman Kevin Warsh to reinforce the point with a tough, inflation-fighting message.
For markets primed for easier money, the takeaway is blunt: relief on rates now looks further off than many had hoped.
