Fed Flags Job Market Risks, Stays Cautious on Inflation

The Fed kept the federal funds rate unchanged at 3.50%-3.75% for a fourth consecutive meeting in June 2026, in line with expectations. This is the first meeting under new Fed Chair Kevin Warsh. New economic projections show that 9 officials see at least one rate hike this year, with 6 anticipating at least two. Another 9 expected no move or a cut. Only 18 officials out of 19 entered their projections for rates at the end of 2026, as the new Fed Chair did not submit his forecast. Meanwhile, GDP growth is seen lower in 2026 (2.2% vs 2.4% in March) but the forecast for 2027 was kept at 2.3%. PCE inflation was revised sharply higher to 3.6% from 2.7% for this year and for 2027, it was also raised to 3.3% from 2.7%. Policymakers noted that economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Job gains have kept pace with the workforce while inflation remains elevated relative to the 2% goal.

The Federal Reserve is widely expected to keep the federal funds rate unchanged at 3.50%-3.75% for a fourth consecutive meeting in June 2026, as policymakers navigate persistent inflation and uncertainty over the pace at which price pressures will ease. This meeting will be the first under new Fed Chair Kevin Warsh, whose appointment was initially viewed as leaning toward interest rate cuts and policy easing; however, market expectations have since shifted toward a more hawkish stance. Although the US and Iran have agreed to a provisional peace deal, oil prices remain above pre-war levels, while recent labour market data has pointed to continued strength in employment. Investors will closely watch the Fed’s updated economic projections, including the “dot plot,” for signals on the future path of interest rates. However, many analysts expect that new Chair Warsh will not participate in it. Back in March, the Fed had previously projected one rate cut in 2026 and another one in 2027.

A majority of Fed officials highlighted that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%, minutes from the FOMC meeting in April 2026 showed. To address the possibility of rate hikes, "many participants indicated that they would have preferred removing the language from the post-meeting statement that suggested an easing bias regarding the likely direction of the Committee’s future interest rate decisions“. However, several participants highlighted that it would likely be appropriate to lower interest rates once there are clear indications that disinflation is firmly back on track or if solid signs emerge of greater weakness in the labor market. The Fed kept the fed funds rate unchanged at the 3.5%–3.75% target range for a third consecutive meeting in April. The decision was not unanimous, and the 8-4 vote marked the first time since October 1992 that four officials dissented against a FOMC decision.