KINGSTON, Jamaica — The United States (US) Federal Reserve kept interest rates unchanged Wednesday, but projections released with the decision showing that nine policymakers favour higher rates this year could make Bank of Jamaica (BOJ) more cautious about another reduction.

The decision, announced Wednesday afternoon, maintained the Fed’s benchmark rate at 3.50 per cent to 3.75 per cent.

Nine of the Fed’s 19 policymakers projected a higher policy rate by the end of 2026. None had projected an increase when the forecasts were last published in March.

Eight projected no change, one favoured a reduction and one did not submit an interest-rate forecast. Six of the nine projecting higher rates placed the year-end rate more than a quarter percentage point above its current level.

The Fed did not commit to an increase. Wednesday’s decision to hold rates was unanimous, while the differences appeared in policymakers’ individual views of where rates should be at the end of the year.

For Jamaica, the projections introduce a risk that was not included in BOJ’s May baseline forecast.

Minutes from BOJ’s May 19-20 Monetary Policy Committee meeting show that the central bank expected the Fed to keep its benchmark rate at 3.50 per cent to 3.75 per cent throughout 2026.

The Fed’s latest projections do not mean Jamaican mortgage, car-loan or credit-card payments will rise immediately. They could, however, delay the conditions needed for borrowing costs to fall.

BOJ’s policy rate stands at 5.50 per cent, following a quarter-percentage-point reduction in February and unchanged decisions in March and May. Its next policy announcement is scheduled for June 29.

Why does a US rate decision matter in Jamaica? 

Higher US interest rates increase the returns available on Treasury securities and other US-dollar investments.

Were BOJ to reduce its rate while US rates rise, some investors could find US-dollar assets more attractive relative to Jamaican-dollar investments.

That could add to demand for foreign currency and place pressure on the Jamaican dollar.

The relationship is not automatic. The exchange rate also depends on tourism earnings, remittances, import payments, overseas investment, local market conditions and BOJ’s own sales of foreign currency.

But any sustained weakening of the Jamaican dollar would raise the local cost of imported fuel, food, medicine, vehicles, machinery and raw materials. Businesses may then pass some of those increases on to consumers.

That is one reason BOJ may be reluctant to cut rates too quickly.

Does this mean local loan rates will rise? 

Not necessarily.

Commercial banks set their own mortgage, car-loan, credit-card and business-lending rates. Those rates depend on several factors, including deposit and funding costs, competition, operating expenses and the risk attached to each borrower.

A BOJ reduction also does not guarantee that banks will lower their lending rates immediately or by the same amount.

The Fed decision therefore has no direct or immediate effect on a Jamaican borrower’s monthly payment.

Its importance lies in whether it makes BOJ less willing to lower the policy rate that helps influence broader financial conditions in Jamaica.

Why was BOJ already cautious? 

BOJ’s Monetary Policy Committee unanimously held its policy rate at 5.50 per cent in May after concluding that the inflation outlook had worsened and economic conditions had become more uncertain.

The central bank forecast that annual inflation would rise above the six per cent upper limit of its target during the June and September quarters and remain above target until December.

BOJ identified higher oil and transportation costs, regulated-price adjustments, increased domestic spending, rising inflation expectations and the wider effects of more expensive international commodities among the main pressures.

It also assessed the risks as weighted towards inflation being higher than forecast, particularly if the Middle East conflict lasted longer, commodity prices rose further or adverse weather pushed up local agricultural prices.

Jamaica’s consumer price index has since risen by 1.5 per cent during May, led mainly by higher prices for food, meals purchased away from home and electricity.

BOJ’s target is to keep annual inflation between four and six per cent over the medium term.

Why is foreign exchange part of the concern? 

BOJ projected that Jamaica’s current-account balance would move from a surplus equal to 0.2 per cent of gross domestic product in fiscal year 2025/26 to a deficit of between seven and 11 per cent in 2026/27.

It attributed much of the projected deterioration to higher oil and freight costs and weaker remittance inflows, partly offset by stronger tourism receipts.

A deficit would have to be financed through overseas investment, borrowing or a reduction in reserves.

BOJ expects its international reserves to decline from their current elevated level during the fiscal year as it sells US dollars to maintain orderly conditions in the foreign-exchange market.

The committee agreed in May to continue pre-announced foreign-currency sales and the direct supply of US dollars to selected companies in the energy sector.

Higher US rates could add another source of demand for US dollars while Jamaica is already expected to spend more on imported fuel and freight.

Why are some Fed policymakers considering higher rates? 

The Fed’s projections were released alongside a sharp increase in its inflation forecast.

Policymakers now project headline personal consumption expenditures inflation at 3.6 per cent at the end of 2026, up from 2.7 per cent in March. Core inflation, which excludes food and energy, is projected at 3.3 per cent.

Higher interest rates can reduce borrowing and spending, helping to slow price increases. They can also weaken economic activity and make financing more expensive.

The projections are not promises. Policymakers can change their views as new information becomes available on inflation, employment and economic growth.

Financial markets can nevertheless respond before the Fed acts, affecting the US dollar, bond yields and borrowing costs in international markets.

Could BOJ still cut? 

Yes.

BOJ does not have to follow the Fed. Its decision will depend mainly on Jamaican inflation, the exchange rate, credit conditions and the strength of the domestic economy.

There is also a case for lower rates.

BOJ estimated in May that the Jamaican economy could contract by between one and three per cent during the June quarter. Private-sector credit growth slowed to 6.3 per cent in March from 7.8 per cent a year earlier, mainly because of weaker business lending.

Lower rates could support borrowing, investment and economic activity.

But BOJ entered June already expecting inflation to exceed its target, import costs to rise and greater foreign-exchange intervention to be required.

Wednesday’s Fed projections now require it to consider a possibility that was absent from its May baseline: US interest rates may rise before the end of the year.

That may not rule out another BOJ cut, but it raises the threshold the central bank may have to clear before deciding that lower rates would not add pressure to inflation or the Jamaican dollar.