Fed Holds in June, Still Penciling One Cut for 2026 — While Inflation Forecasts Drift the Wrong Way

The Federal Reserve held rates steady at its June meeting and kept its projection of a single quarter-point cut in 2026 — but the details of the forecast moved in the direction that explains the committee's caution: inflation up, growth up, urgency down.

Officials now see both headline and core inflation ending the year at 2.7%, higher than December's projections of 2.4% and 2.5% respectively. GDP growth was nudged up to 2.4%, and unemployment is expected to hold near 4.4% — a picture of an economy expanding solidly with price pressure that refuses to finish the last mile to 2%.

The shape of the path

The longer-run dot path sketches a committee planning to do very little for a very long time: one cut this year, two more in 2027, and a terminal zone of 3%-3.25% by 2028. The Board separately set the rate on reserve balances at 3.65%, effective June 18.

Under Chair Kevin Warsh, six weeks into the job at this meeting, the projections carry a different subtext than they would have a year ago. Warsh arrived pledging a regime change and calling above-target inflation overtolerated — which makes a forecast showing 2.7% inflation into year-end less a benign glide path than a standing argument for the hawks. Markets heard it that way: through July, futures would price meaningful odds that the next move is a hike, not the penciled cut.

What the summer did to the forecast

The June projections aged eventfully. An oil shock arrived within weeks as the Iran conflict reignited; a semiconductor crash subtracted from the wealth effect; and by August, a run of soft data had markets doubting any hike while the Treasury's bond buybacks eased financial conditions from the fiscal side.

The committee's one-cut pencil mark survives it all for now. Whether it survives Jackson Hole — and the fall's inflation prints, with tariffs and $89 oil in the pipeline — is the question the next dot plot answers.