Australian Dollar slides below 0.7100 as Warsh strikes hawkish tone

AUD/USD extends losses on Wednesday after the Federal Reserve (Fed) raises interest rates and releases a hawkish set of policy projections. The pair slides more than 20 pips in the immediate reaction and trades around 0.7093 at the time of writing.

The Fed raises the federal funds target range by 25 basis points to 3.75%-4.00% in a unanimous 12-0 decision, marking its first rate increase since July 2023. The US Dollar Index (DXY) extends its gains above the psychological 100.00 mark following the announcement.

Speaking after the decision, Fed Chairman Kevin Warsh said, “Inflation is too high, and has been for too long.” He added, “Because of the underlying strength of the economy, we can afford to focus on price stability.” “We must be confident that underlying inflation must be moving to 2% on a timely basis, and the FOMC decided this has not been met,” Warsh said. He noted that inflation risks are tilted to the upside, while risks to the labour market are balanced.

The updated dot plot shows that 16 of 18 Fed officials expect at least one more rate hike this year. Twelve policymakers project one additional quarter-point increase, four expect two more hikes and two see no further moves.

The median year-end rate projection rises to 4.1% from 3.8% in June. The 2027 projection also climbs to 4.1% from 3.6%. The Fed raised its 2026 GDP growth forecast to 2.3% from 2.2% in June and lifted its headline PCE inflation projection to 3.7% from 3.6%. The core PCE inflation forecast also increases to 3.4% from 3.3%, while the Unemployment Rate projection falls to 4.1% from 4.3%.