As widely anticipated by the market, the Fed decided to leave interest rates unchanged yesterday evening, while simultaneously cooling hopes for a continuation of the recent monetary easing cycle in the United States.

The statement released following the meeting of its Federal Open Market Committee (FOMC) was marked by a notable shift in tone: the language previously suggesting that further rate cuts remained likely during the year was simply removed.

The Fed Hardens Its Tone

"The June FOMC proved to be clearly hawkish: nine policymakers project rate hikes in 2026, and inflation forecasts have been significantly revised upward," noted analysts at Bank of America.

"Warsh himself displayed a rigorous posture, emphasizing the importance of restoring price stability. We now perceive a much higher risk of a rate hike as early as this year," the American bank stated.

"The distribution of opinions within the committee signals a clear lean toward monetary tightening," added the team at Danske Bank.

"While we maintain our scenario of rate hikes for the months of December and March, the risks are now tilted toward an earlier start," the Danish bank warned.

According to the CME FedWatch tool, the probability of a rate hike as early as the July 28 and 29 meeting has abruptly climbed to over 70%.

Chill Hits U.S. Indices, Yields Under Watch

This development pushed Wall Street indices lower yesterday, as many investors had hoped for a more accommodating message from the U.S. central bank given the recent retreat in oil prices, which could suggest a normalization of inflation in the coming months.

At the closing bell, the Dow Jones lost nearly 1%, the S&P 500 fell 1.2%, and the Nasdaq 100 shed around 1%.

Index futures currently suggest a rebound for New York markets at Thursday's open.

With the prospect of more aggressive monetary tightening by the Fed to combat inflation, which also raises fears of a long-term negative impact on the U.S. economy, investors are closely monitoring the evolution of the U.S. yield curve.

The caution displayed by the Fed and the remarks by Kevin Warsh are not weighing on Treasury yields immediately, with the U.S. 10-year currently easing toward 4.4630%.

While the bond market is seeing a moment of relaxation, the dollar rallied sharply on Wednesday evening, supported by Kevin Warsh's comments dismissing the scenario of a long easing cycle in the U.S.

The euro is currently stabilizing in the $1.1515 zone against the greenback.

Asia Holds Firm, Oil Accelerates Its Decline

The Fed's announcements did not weigh heavily on the trend in Asia, where the Nikkei index on the Tokyo Stock Exchange posted a gain of approximately 1.9% by the end of the session.

The Shanghai Composite index lost 0.3%, but the CSI 300 of major mainland China caps advanced 0.4%.

Oil prices continue their correction following the signing of the U.S.-Iranian memorandum of understanding, which will lead to the "instantaneous" reopening of the Strait of Hormuz and the "immediate" lifting of the U.S. blockade, according to Pakistan.

Brent fell another 2.4% to $77.6 per barrel, and West Texas Intermediate (WTI) lost 2.7% to $74.7, its lowest level since the beginning of March. The latter has lost more than 18% in just over a week with the prospect of a favorable diplomatic outcome in the Middle East.

On today's macroeconomic agenda, the market will look to this afternoon's Conference Board leading indicators, weekly jobless claims, and the Philadelphia Fed index.

Also on the central bank front, the Bank of England (BoE) will announce its monetary policy decision at 1:00 PM. It is expected to leave rates unchanged and maintain a cautious approach, or even adopt a hawkish bias due to the resurgence of inflationary pressures in the country.