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The US Federal Reserve is likely to keep interest rates unchanged throughout 2026 as rising energy prices and ongoing geopolitical tensions continue to pose upside risks to inflation, according to a report by ICICI Bank.
The report stated that the latest US inflation data supports the Federal Open Market Committee's (FOMC) cautious approach towards monetary policy. "For FOMC, the release validated the need to acknowledge the upside risks to inflation. We maintain our view of the US central bank maintaining status quo throughout 2026," the report said. According to the report, inflationary pressures in the United States are expected to remain elevated in the coming months due to high energy prices linked to the ongoing conflict in West Asia. "Going forward, inflation is expected to continue to remain high in May driven by high energy prices as the effects of the conflict in West Asia continue to linger," it added. The US Consumer Price Index (CPI) inflation rose to 3.8 per cent year-on-year in April, higher than market expectations of 3.7 per cent. On a monthly basis, prices increased by 0.6 per cent in April compared to 0.9 per cent growth recorded in the previous month. Core CPI inflation, which excludes food and energy prices, also came in higher than expectations. Core inflation stood at 0.4 per cent month-on-month and 2.8 per cent year-on-year, compared to market expectations of 0.3 per cent and 2.7 per cent respectively. The report said inflation exceeded expectations across categories, mainly due to the energy price shock caused by the ongoing war in West Asia and the continued impact of tariff-related price increases. "The release confirms that inflation came above expectations across all categories, reflecting the energy price shock from the war and the ongoing modest tariff pass-through," the report noted. According to ICICI Bank, the latest inflation data indicates that price pressures remain well above the US Federal Reserve's target level. The report also observed that while the impact of tariffs on prices has remained limited so far, the situation could change depending on policy announcements expected in July. "Overall, the CPI report showed that inflation printed above expectations remaining well above the FOMC's target level as the effects of energy price shock from the ongoing conflict continue to show up in prices," the report said. The bank further stated that risks from energy inflation remain a major concern for policymakers and support the Federal Reserve's decision to maintain status quo during its April policy meeting. "The release supports the FOMC's decision to maintain status quo in the April policy meeting as it refocuses the build-up of inflation risks," the report added. (ANI)
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