Fed Holds Rates Steady, Signals a Possible Hike Later This Year
The US Federal Reserve voted to keep its policy interest rate unchanged at 3.50%–3.75% at its June 18 meeting, but signaled it may need to raise rates once more before the end of the year as officials grow more concerned that inflation will stay above the 2% target.
According to the Fed’s latest economic projections, nine officials now expect at least one rate increase by the end of 2026. The post-meeting statement also dropped all previous language hinting at the possibility of rate cuts — a notable shift in the direction of monetary policy.
This marks the first sign of influence from new Fed Chair Kevin Warsh, who has shortened the policy statement to a style reminiscent of former chair Alan Greenspan, noting only the rate decision and reaffirming the goal of keeping sufficient liquidity in the banking system.
At the post-meeting press conference, Warsh said the Fed would avoid offering “forward guidance” — advance signals about the future path of rates — because it isn’t well suited to current economic conditions, adding that he couldn’t say how the next meeting would be decided.
Warsh also offered a view that differs from the Fed’s earlier stance, pointing out that the US economy is still being supported by productivity growth and business investment, while part of the inflationary pressure stems from supply-side factors, especially higher energy prices.
The Fed now expects inflation to reach 3.6% by the end of 2026 — up from its earlier projection of 2.7% — before slowing to 2.3% in 2027. The policy rate is likely to rise by 0.25% before year-end, then gradually ease back toward current levels in late 2027 and 2028. The Fed also trimmed its economic growth forecast slightly, while keeping its year-end unemployment estimate at 4.4%, unchanged from March.
Following the announcement, US Treasury yields rose, the dollar strengthened against a basket of major currencies, and US stocks slipped slightly as investors priced in a greater chance of another rate hike this year.
Warsh additionally announced the formation of several working groups to review the Fed’s operations across policy communication, balance sheet management, the use of economic data, and the inflation-control framework — changes that could reshape how the Fed conducts monetary policy going forward.
Source: https://www.reuters.com/business/warsh-led-fed-expected-hold-interest-rates-steady-2026-06-17/
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