Federal reserve holds rates steady as officials split over future hikes amid rising inflation

A file image of Federal Reserve Chair Kevin Warsh. The Fed held rates steady for the fourth straight meeting, keeping the target range at 3.5%-3.75%, while highlighting sharp disagreements among officials about the future direction of rates. | Photo Credit:
EVELYN HOCKSTEIN

Fed policymakers kept rates on hold and disagreed about the likelihood of another increase this year.

According to the updated forecasts, nine members see at least a 25‑basis‑point increase this year, six of them expect two or more hikes, while the remaining nine anticipate either no change or a reduction.

It is worth noting that 18 of the 19 participants provided rate expectations for the end of 2026; the missing entry likely reflects Chairman Kevin Warsh’s reluctance to offer a forecast, given his skepticism toward forward guidance.

During its inaugural meeting chaired by Warsh, the FOMC unanimously decided on Wednesday to maintain the benchmark federal funds rate between 3.5% and 3.75%.

This marks the fourth consecutive meeting where rates were left unchanged, as the committee’s focus has moved from labor‑market conditions to inflation pressures, partly stemming from the Iran conflict’s effect on energy costs.

In the statement released after the meeting, officials noted that inflation stays high and pledged to achieve price stability.

They kept describing economic growth as “solid,” and highlighted that productivity gains and business investment remain robust.

The statement was noticeably shorter than those issued after previous meetings. Its conciseness may hint at the communication style Warsh intends to introduce, as he has vowed to overhaul how the Fed conveys its message.

Warsh’s first press appearance as Fed chair—potentially the most watched in decades—is set for 2:30 p.m. in Washington.

He faces pressure to give investors a believable plan for taming inflation, which has picked up again. At the same time, this may clash with President Donald Trump’s preference, expressed during the selection process, for a Fed leader who would push rates downward.

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Inflation Forecasts Jump

Officials revised several economic projections that were originally released in March, shortly after the Middle East hostilities erupted.

The median inflation outlook for the current year rose to 3.6%, up from 2.7%. Likewise, the 2026 core‑inflation projection—which strips out food and energy volatility—climbed to 3.3% from 2.7%.

Officials trimmed their 2026 growth forecast to 2.2%, down from the 2.4% projected in March. The median unemployment estimate for the end of 2026 slipped to 4.3%, from 4.4%.

Shifting Backdrop

The environment facing policymakers has changed sharply since the start of the year, when labor‑market weakness and a benign inflation view made further rate cuts in 2026 seem plausible to many Fed members.

Since that time, robust employment data have indicated the labor market is emerging from a prolonged stretch of sluggish hiring. Job creation in May exceeded all forecasts, and the unemployment rate remained steady at 4.3%.

Concurrently, an April price report revealed that the Fed’s favored inflation gauge climbed to 3.8% year‑over‑year, the biggest jump since 2023. Both consumer and producer price indexes also accelerated in May, posting their fastest gains in over three years.

These pressures stem not only from the Iran conflict but also from cost spill‑offs linked to the boom in corporate investment aimed at constructing AI infrastructure.

Nevertheless, word of a tentative US‑Iran peace accord has pushed oil prices lower. Should the deal hold, it could alleviate considerable upward pressure on energy costs and overall inflation.

Early in the year, investors were anticipating a return to Fed rate cuts this year. However, as the June meeting approached, federal‑funds futures implied a 0.25‑point rate hike by the end of 2026.

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Published on June 17, 2026