Fed Monetary Policy Report: Upside risks to the inflation outlook in the near term have increased

Dhwani Mehta FXStreet

“Upside risks to the inflation outlook in the near term have increased,” the US Federal Reserve (Fed) stated in its semi-annual Monetary Policy Report released on Friday.

Additional takeaways

More lasting but likely still temporary upward pressure on inflation has come from prices for goods experiencing supply chain bottlenecks.

Survey-based and market-based measures of longer-term inflation expectations have risen since the end of last year.

Inflation expectations in a range that is broadly consistent with longer-run inflation objective.

Fed institutions at the core of the financial system remain resilient.

Data for the second quarter suggest a further robust increase in demand.

Structural vulnerabilities persist at some types of money market funds and bank loan and bond mutual funds.

On Fed's asset purchase program, in coming meetings the committee will continue to assess the economy’s progress toward goals.

The post-pandemic labor market and the characteristics of maximum employment may well be different from those of early 2020.

Fed prepared to adjust stance of monetary policy as appropriate if risks emerge.

As extraordinary circumstances pass, supply and demand should move closer to balance, and inflation is widely expected to move down.

Spate of retirements spurred by the pandemic will continue to weigh on labor force participation for some time.

Recent readings on inflation expectations indicate inflation expected to return to levels consistent with the committee’s 2% longer-run inflation objective after a period of temporarily higher inflation.

No notable effect on treasury market functioning followed the expiration in march 2021 of temporary changes to the supplementary leverage ratio.

Fed's CIE index at levels 'likely more consistent' with fed's longer-term 2% inflation goal.

Most measures of hedge fund leverage are now above their historical averages.

Market reaction

The Fed report has little to no impact on the US dollar index, as it keeps its recovery mode intact around 92.30, as of writing.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

EUR/USD remains offered below 1.1600, seems vulnerable near multi-month low

The EUR/USD pair struggles to capitalize on the overnight bounce from the 1.1530 region, or the lowest level since November 2025, and lower for the third consecutive day on Wednesday. Spot prices slide back below the 1.1600 mark during the Asian session and seem vulnerable to slide further.

GBP/USD weakens to near 1.3300 as geopolitical risks bolster US Dollar

The GBP/USD pair attracts some sellers to around 1.3310 during the early European session on Wednesday. Escalating conflict in the Middle East triggers a "flight to safety," supporting the US Dollar against the Pound Sterling. Traders will take more cues from the US ADP Employment and ISM Services Purchasing Managers Index reports, which are due later on Wednesday.

Gold sticks to intraday gains above $5,150; upside seems limited amid bullish USD

Gold preserves its modest intraday gains through the Asian session on Wednesday and currently trades just above the $5,150 level, up around 1.30% for the day. Investors remain concerned about a prolonged conflict in the Middle East and its impact on the global economy amid an already uncertain environment.

Bitcoin, Ethereum and Ripple struggle for direction as consolidation persists

Bitcoin, Ethereum and Ripple prices trade with a cautious tone at the time of writing on Wednesday as upside momentum continues to fade across the broader crypto market. BTC remains within a parallel channel, ETH struggles below key resistance, while XRP remains fragile within a descending channel. These top three cryptocurrencies by market capitalization continue to struggle to establish a directional bias amid the consolidation phase.

When rates start driving the bus through a war zone

The volatility regime itself is also changing character. EM carry trades thrive in calm markets. They suffocate in environments that resemble Buckaroo Banzai trading conditions, where headlines move faster than models. That is exactly the world investors are now trying to recalibrate to. Euro rate volatility had been remarkably subdued even while equities were wobbling. That stability is now being questioned, and once volatility leaks into rates it rarely stays contained. Indeed, carry trades love calm seas. War turns the ocean into white water.

Solana Price Forecast: SOL consolidation near resistance as ETF inflows offer mild support

Solana price is facing slight rejection as it approaches the upper boundary of the consolidation range at around $88 on Wednesday. Institutional demand is strengthening as spot Exchange Traded Funds recorded two consecutive inflows so far this week.