NEW YORK — The U.S. dollar faces pressure and crude oil prices will likely fall if the Federal Reserve holds its policy rate unchanged through the third quarter of 2026, according to analysis from ING.
ING's view centers on what a static Fed signals to markets. If Chair Kevin Warsh and the Federal Open Market Committee keep the federal funds rate stable, it suggests the central bank sees economic conditions as insufficient to warrant either tightening or easing — a posture markets tend to read as a sign of decelerating growth.
For the dollar, a Fed hold reduces the interest rate differential against other major central banks, particularly those seen as more likely to ease or hold their own higher rates. That erodes the dollar's attractiveness in carry trades, where investors borrow in low-yield currencies to invest in higher-yielding ones.
Oil prices would respond to the implied growth slowdown. Weaker economic activity translates directly to reduced crude demand. A softer dollar would make dollar-denominated oil cheaper for non-dollar buyers, but ING said that effect would likely be secondary to demand-side pressure.
The Federal Reserve has held its target rate at 5.50 percent since its last hike in March 2026. Warsh has repeatedly said the Fed needs sustained evidence that inflation is moving toward the 2 percent target before adjusting rates. Core PCE has held above 2.8 percent for three consecutive months.
In the bond market, a prolonged hold could flatten the yield curve — or deepen an inversion — if markets price in long-term growth concerns. The two-year Treasury yield, the most direct read on Fed policy expectations, would likely stay elevated while longer-dated yields fall on growth fears, compressing spreads and raising duration risk for portfolios holding longer-maturity assets.
U.S. multinationals would see mixed effects. A weaker dollar benefits exporters by making goods more competitive abroad and lifts the dollar value of foreign earnings. Importers face higher costs for goods purchased overseas.
Energy companies and oil-exporting nations would feel a sustained price drop in revenues. Futures markets would reflect the shift, with traders potentially unwinding long crude positions.
The scenario is not without counter-arguments. A re-acceleration of inflation — driven by supply shocks or stronger-than-expected wage growth — could force a hawkish pivot and strengthen the dollar. Geopolitical disruptions could spike oil prices regardless of demand signals.
The FOMC meets Sept. 18, Nov. 6 and Dec. 18, 2026. Markets will parse policy statements and Warsh's press conferences for any shift in the Fed's economic outlook or its tolerance for above-target inflation.
Equity markets were mixed. The Nasdaq rose 0.6 percent to 25,023, the S&P 500 gained 0.2 percent to 7,442 and the Dow Jones Industrial Average dropped 1.0 percent to 52,204.
