The Federal Reserve just told markets to forget about rate cuts in 2026. At its June 17 meeting, the FOMC held the federal funds rate steady at 3.50%-3.75%, which was the expected move. The unexpected part was the dot plot, which now shows a median year-end projection of 3.8%, up sharply from the 3.4% forecast in March.
In English: the central bank went from signaling a rate cut this year to signaling a rate hike. Nine of the eighteen committee members now expect at least one increase before December.
The inflation problem that won’t quit
The shift wasn’t arbitrary. The committee revised its 2026 PCE inflation forecast to 3.6%, a dramatic jump from the 2.7% projection issued just three months ago. Persistent geopolitical tensions, particularly related to the Iran conflict, have been cited as a key driver of inflationary pressures.
The long-run neutral rate estimate held steady at 3.1%, which means the current policy rate is already restrictive. The committee’s statement language was specifically modified to remove previous suggestions of easing.
