The Federal Reserve held rates steady at 3.5%-3.75% in a unanimous vote, its fourth consecutive hold, but delivered a notably hawkish shift. Officials now lean toward steady rates or even one hike in 2026 before any cuts, walking back prior expectations of a single 2026 cut.
Surging inflation driven by energy supply shocks from the Middle East conflict, has pushed headline PCE to 3.6% and core to 3.3%, with CPI reaching 4.2% in May, the highest in three years.
Under new Chairman Kevin Warsh, the FOMC dropped forward guidance and launched task forces reviewing communications, the balance sheet and the inflation framework. The dot plot shows broad support for holds or hikes this year, with only one projecting a lone 2026 cut.
Trade analysis
Markets remain heavily tilted by persistent energy inflation versus any growth slowdown from the conflict.
Bullish (1-2 cuts) signals:
- Sticky or re-accelerating inflation reinforcing “higher for longer”
- Fed maintaining data-dependent, cautious tone without easing hints
Bearish (0-1 cuts) signals:
- Hotter inflation data prompting prolonged hold or further hikes
- Stronger broad-based employment and resilient growth
Latest FOMC projections and inflation surge tilt probability firmly toward the lower end. Traders should watch upcoming CPI prints as well as oil prices. Our base case is 0 cut in 2026, heavily back-loaded.