The Federal Reserve held the federal funds rate unchanged at 3.50% to 3.75% at its June 2026 meeting, the fourth consecutive pause, while revising its inflation outlook sharply higher and signalling a divided committee on the path for rates this year.

Key Highlights

  • The Fed held rates at 3.50% to 3.75% for a fourth straight meeting, in line with market expectations.
  • PCE inflation forecasts were revised sharply higher to 3.6% for 2026, up from 2.7% projected in March.
  • Nine officials see at least one rate hike this year, six anticipate at least two, while nine expect no move or a cut.
  • GDP growth projections for 2026 were lowered to 2.2% from 2.4%, with the 2027 outlook held at 2.7%.

The Federal Reserve kept the federal funds rate unchanged at 3.50% to 3.75% at its June 2026 policy meeting, marking the fourth consecutive meeting without a change and the first under new chair Kevin Warsh. The decision came in line with expectations across financial markets, though updated economic projections revealed a sharp revision to the inflation outlook and a split committee on whether tightening will be needed before year end.

New projections showed PCE inflation revised to 3.6% for 2026, a significant increase from the 2.7% forecast issued in March. The 2027 PCE forecast was also raised to 2.3% from 2.2%. Policymakers attributed the upward revision in part to supply shocks, which have kept inflation elevated relative to the Federal Reserve's 2% target despite a period of steady rates. GDP growth for 2026 was revised down to 2.2% from the March projection of 2.4%, while the 2027 growth forecast was held at 2.7%.

The committee's rate projections revealed a divided outlook. Nine officials see at least one quarter-point rate increase before the end of 2026, and six of those anticipate at least two hikes. On the other side, nine officials expect rates to remain unchanged or move lower. The near-even split underscores the difficulty of the Fed's task as it weighs persistently above-target inflation against slowing growth and elevated uncertainty.

Only 18 of 19 officials submitted rate projections for the end of 2026, an unusual omission that has been widely interpreted as the new chair declining to enter his forecast, a move that had been anticipated by market participants in advance of the meeting. Warsh has historically favoured a more hawkish stance, and his decision not to submit projections at his first meeting leaves his policy inclinations formally unstated.

Policymakers noted that economic activity is expanding at a solid pace despite elevated uncertainty and that job gains have kept pace with workforce growth. However, the explicit acknowledgement that inflation remains elevated relative to the 2% goal, in part reflecting supply shocks, reinforces that rate cuts are not imminent for the majority of the committee.

Market participants are now focused on the pace at which the US-Iran peace agreement and associated energy price declines flow through to lower import and goods inflation readings in the coming months, which could shift the balance of opinion within the committee toward a more patient stance on rates.

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