The Federal Reserve left interest rates unchanged at 3.5 to 3.75 percent on June 17, 2026, in the first rate decision under new Fed Chair Kevin Warsh, but the central bank’s updated projections sent a clear hawkish signal: nine of 18 FOMC members now expect at least one rate hike before the end of 2026, and six expect two hikes. The dot plot erased an earlier indication of a cut this year entirely, pushing any rate reductions into 2027 at the earliest. The shift reflects a dramatic upward revision to inflation forecasts driven by the Iran war and ongoing tariff effects that we covered in detail in our US economy tariffs and stagflation risk analysis.
The S&P 500 fell 1.21 percent and the Nasdaq shed 1.34 percent on June 17 after the hawkish projections were released. Both indices rebounded sharply on June 18 after the Iran peace deal signing at Versailles reduced geopolitical risk, with the Nasdaq gaining 3 percent.
The New Inflation Projections
| Metric | March 2026 Projection | June 2026 Projection |
|---|---|---|
| PCE Inflation (year-end 2026) | 2.7% | 3.6% |
| Core PCE Inflation (year-end 2026) | 2.5% | 3.3% |
| Fed Funds Rate (year-end 2026 median) | 3.4% | 3.8% |
| Members expecting 2026 rate hike | 0 of 18 | 9 of 18 |
| Members expecting 2 hikes in 2026 | 0 of 18 | 6 of 18 |
PCE inflation — the Fed’s preferred measure — is now projected to end 2026 at 3.6 percent, up from the 2.7 percent forecast in March. That 0.9 percentage point upward revision in a single quarter reflects how sharply the Iran war disrupted energy prices and global supply chains. The tariff-driven inflation the Trump administration has generated separately compounds the problem — as we examined in the US economy stagflation risk breakdown, the combination of rising prices and slowing growth is putting the Fed in a difficult position.
Kevin Warsh’s First Meeting as Fed Chair
This was the first FOMC meeting under Kevin Warsh, who replaced Jerome Powell as Fed Chair in early 2026. Warsh announced the formation of task forces to overhaul major Federal Reserve operations, signaling that procedural and institutional changes are coming beyond just rate decisions. Warsh dropped the Fed’s previous practice of “forward guidance” — specific signals about future rate moves — introducing more uncertainty into market expectations. The policy shift is significant: Trump’s decision to delay Jay Clayton’s DNI confirmation using legislative leverage is part of the same pattern of institutional disruption the administration is pursuing across government agencies, with the Fed now also in that picture.
Why Rates Are Being Held Despite Rising Inflation
The Fed is holding rates steady rather than hiking immediately because the inflation driving the upward projection is largely supply-side — caused by energy prices from the Iran conflict and tariffs — rather than demand-side overheating. Supply-side inflation is less responsive to rate hikes, which work primarily by suppressing demand. Raising rates aggressively into a potential economic slowdown risks triggering the stagflation scenario: high inflation combined with rising unemployment.
Nine members expecting a hike by year-end reflects a conditional view: if inflation does not come down on its own as energy prices stabilize post-Iran deal, the Fed will feel compelled to act. The June 18 Iran MOU signing, which pushed oil prices lower, modestly improves the inflation outlook and could reduce the probability of a 2026 hike if it holds.
What the Fed Decision Means for Consumers
Rates remaining at 3.5 to 3.75 percent means mortgage rates, auto loan rates, and credit card interest rates will not see immediate relief. The 30-year fixed mortgage rate has tracked the federal funds rate broadly higher since 2022, making housing affordability a persistent issue. Credit card annual percentage rates, which typically price off the prime rate, remain near historic highs.
Savers with money in high-yield savings accounts, certificates of deposit, or money market funds continue to benefit from elevated rates while they persist. The Fed’s signal that cuts are unlikely until 2027 means those rates will stay competitive for at least another year.
Frequently Asked Questions
What did the Federal Reserve decide in June 2026?
The Federal Reserve voted 12-0 to leave its benchmark federal funds rate unchanged at 3.5 to 3.75 percent at its June 17, 2026 meeting, the first under new Chair Kevin Warsh. The Fed raised its year-end 2026 inflation forecast from 2.7 to 3.6 percent and signaled nine of 18 FOMC members expect at least one rate hike before year-end. Rate cuts were pushed back to 2027 or later.
Will the Fed raise rates in 2026?
Possibly. Nine of 18 FOMC members who submitted projections in June 2026 expect at least one rate hike before the end of the year, and six expect two hikes. The Fed’s June projection shows a median year-end funds rate of 3.8 percent, above the current 3.5 to 3.75 percent range. Whether a hike materializes depends on whether inflation declines following the Iran peace deal and any moderation in tariff-driven price increases.
Why is inflation rising in 2026?
The Fed’s June 2026 projections show PCE inflation rising to 3.6 percent at year-end, up from 2.7 percent projected in March. The primary drivers are energy price spikes from the US-Iran conflict, which disrupted Middle East oil supply and the Strait of Hormuz, and ongoing tariff-driven price increases across imported goods categories. The Iran peace deal signed on June 18 may reduce energy price pressure going forward.
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