Two central banks, two realities: a divided FED and an ECB under pressure

Fed holds rates, Powell stays on

Yesterday, as widely expected, the Federal Reserve decided to keep rates unchanged in the 3.50%–3.75% range.

However, the Fed’s board is far from unified. Three regional Fed presidents (Hammack, Kashkari, and Logan) voted against maintaining the easing bias (the language suggesting the next move is more likely a cut than a hike). One governor, Miran, dissented in favor of an immediate 25 bp cut.

This points to a visibly divided Fed between those who want to maintain an accommodative bias and those who would prefer a more neutral or even hawkish stance, especially in a context of high geopolitical uncertainty and rising energy prices.

These divisions could make it harder for incoming Chair Warsh to proceed with rate cuts. This scenario further complicates the leadership transition and the establishment of a clear policy direction under Kevin Warsh.

Another highly relevant development was Powell’s announcement that he intends to remain a Governor even after the end of his term as Chair (May 15).

This breaks with a practice that has been in place for over 75 years. Powell explained that he wants to stay until the Department of Justice investigation into the Fed’s renovation works is concluded “with transparency and finality.”

His decision removes a vacancy the administration had been counting on and has already been criticized by Bessent. Markets have now priced out rate cuts for this year, and government bond yields have risen.

Possible ECB rate hikes ahead

The situation for the ECB differs from that of the Fed. Europe is far more exposed to supply-side shocks stemming from rising energy prices. Importantly, the ECB has a single mandate—price stability—whereas the Fed also targets full employment.

Short-term inflation expectations in Europe have risen significantly. The ECB Consumer Expectations Survey showed median 1-year inflation expectations at 4.0% (up from 2.5% in February), and 3-year expectations at 3.0% (also up from 2.5%). Both are well above the ECB’s 2% target. Five-year expectations edged up slightly to 2.4% (from 2.3%).

https://www.ecb.europa.eu/press/pr/date/2026/html/ecb.pr260428_1~eddb480492.en.html

Rates were left unchanged at this meeting. Christine Lagarde made no forward commitments and stated that monetary policy decisions will be data-dependent. However, she acknowledged that a rate hike was discussed, reflecting a sense within the board that the situation is moving away from equilibrium.

Markets are now pricing in roughly three ECB rate hikes over the next 12 months.

In short, while the Fed is dealing with internal divisions and a complicated leadership transition, the ECB faces a supply-side shock in an already fragile economy—two very different contexts that will require close attention to macro data in the coming weeks.

Impact on our savings portfolios

Regarding our Savings Portfolios, nothing changes in terms of yield, which remains at 1.6% in euros and 3.25% in dollars. The renewed discussion around rate hikes once again makes these portfolios attractive, as their market value is not negatively affected by rising rates, unlike traditional bond portfolios.

Is the inbestMe Savings Portfolio better than a bank deposit? Yes, historically the euro Savings Portfolio has accumulated 8.5% since inception, compared to 6.7% for fixed-term deposits of up to one year. It also offers tax advantages and greater flexibility than traditional deposits. It can be opened from €1,000 with no limits and without additional conditions or subscriptions.

What is the risk of the inbestMe Savings Portfolio? It is a very low-risk portfolio. The Savings Portfolio has virtually no volatility and does not experience drawdowns. It is composed of two money market funds that include hundreds of very short-term positions, so changes in interest rates do not lead to losses. However, there is a possibility that central bank rates could become negative; in that case, inbestMe would contact clients to recommend alternatives.