Editor’s note: This article was updated to add more detail and context.
The Federal Reserve unanimously held the federal funds rate steady at 3.50%-3.75% on Wednesday, as widely expected, in the first policy meeting under new Fed Chair Kevin Warsh.
The June statement again described inflation as “elevated” relatively to the 2% goal, in part because of the recent jump in global energy prices, and said the unemployment rate had changed little.
“The Committee will deliver price stability,” the Fed stated.
Dot Plot Delivers Hawkish Surprise As Inflation Forecasts Jump
The big surprise came from the updated Summary of Economic Projections. The Fed penciled in higher inflation, a lower unemployment rate and one hike this year, marking a hawkish shift from the March dot plot, which had signaled one additional rate cut.
Personal consumption expenditures (PCE) inflation is now seen at 3.6% in 2026, a marked jump from the previous 2.7%. For 2027 it was revised only marginally higher, to 2.3% from 2.2%.
Crucially, the Fed sees the pressure spreading to core inflation, a sign the central bank no longer views this as an energy shock alone. Core PCE was lifted to 3.3% from 2.7% for 2026 and to 2.5% from 2.2% next year.
Even in 2028, core PCE — the Fed’s preferred inflation gauge — remains slightly above target at 2.1%.
The median participant now sees the federal funds rate ending 2026 at a midpoint of 3.8%, up from 3.4% in March, implying a hike from current levels rather than the cut previously projected.
The dots then pencil in one cut in 2027 and another in 2028.
| 2026 | 2027 | 2028 | |
|---|---|---|---|
| Change in real GDP (%) — June 2026 | 2.2 | 2.3 | 2.2 |
| March projection | 2.4 | 2.3 | 2.1 |
| Unemployment rate (%) — June 2026 | 4.3 | 4.3 | 4.2 |
| March projection | 4.4 | 4.3 | 4.2 |
| PCE inflation (%) — June 2026 | 3.6 | 2.3 | 2.0 |
| March projection | 2.7 | 2.2 | 2.0 |
| Core PCE inflation (%) — June 2026 | 3.3 | 2.5 | 2.1 |
| March projection | 2.7 | 2.2 | 2.0 |
| Federal funds rate (%) — June 2026 | 3.8 | 3.6 | 3.4 |
| March projection | 3.4 | 3.1 | 3.1 |
Stocks Slide, Yields Jump After Hawkish Projections
The reaction was textbook hawkish.
The policy-sensitive two-year Treasury yield spiked immediately after the 2:00 p.m. ET release, climbing roughly 8 basis points to 4.13% as traders stripped rate-cut bets out of the front end.
The dollar firmed, with the U.S. Dollar Index up 0.39% at 99.73, while gold slid 0.75% to $4,302 an ounce.
Equities extended losses on the print.
The S&P 500 – as tracked by the SPDR S&P 500 ETF trust (NYSE:SPY) – fell 0.5% to 7,500 points, with the tech-heavy Nasdaq 100 leading declines, down 0.6% to below 30,000 points, as higher-for-longer rates weighed on growth names.
The Dow Jones Industrial Average held up better, off just 0.1% at 52,100.
All eyes now turn to Warsh’s first press conference at 2:30 p.m. ET, where investors will hunt for any clue on the Fed’s inflation tolerance and where rates could go from here.
Image: Shutterstock
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