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Fed Maintains Interest Rate at 3.75% in June; New Chair Warsh Takes a Hawkish Stance, Hinting at Resuming Rate Hikes

By AI Insights

2026-06-18

Trend analysis based on the updated indicator. View the Indicator→

The U.S. Federal Reserve (Fed) unanimously decided at the June 2026 FOMC meeting to maintain the target range for the federal funds rate at 3.50% to 3.75% (with an upper limit of 3.75%), holding steady for the fourth consecutive meeting. This remained unchanged from the previous level and met general market expectations. This meeting marked the debut of the new Chair, Kevin Warsh, who changed the communication style of the past by releasing a significantly simplified policy statement and officially removing the "easing bias" forward guidance of potential future rate cuts, declaring a new chapter in monetary policy.

In the newly released Summary of Economic Projections (SEP), the most shocking development for the market was the hawkish pivot in the "dot plot." Compared to March, when most officials predicted rate cuts within the year, the June dot plot showed that among the 18 officials submitting projections, 9 (up to half) estimated that at least one 25-basis-point rate hike would be needed before the end of 2026. In addition, the inflation forecast for 2026 was significantly revised upward, with the core PCE estimate jumping from the previous 2.7%, while the full-year GDP growth expectation was slightly revised down to 2.2%, indicating that inflation stickiness has far exceeded official expectations.

The core reasons driving this policy shift are stubborn inflation and geopolitical disruptions. Analysis by Charles Schwab pointed out that the recent Middle East conflict has driven up supply chain prices, such as energy, preventing inflation from falling back to the 2% target. During the post-meeting press conference, Warsh placed his entire focus on "price stability," emphasizing that U.S. productivity and capital investment currently remain robust and the unemployment rate has not significantly deteriorated. This gives the Fed more confidence to focus exclusively on combating inflation and even openly discussing the possibility of returning to a rate-hike cycle.

Looking ahead, in the short term (1-2 months), market focus will revolve around new Chair Warsh's "data-dependent" approach and reduced forward guidance. U.S. Treasury yields are expected to remain volatile at high levels, simultaneously suppressing the performance of tech stocks and high-valuation assets. In the medium term (3-6 months), the primary risk scenario is that if energy prices continue to climb in the third quarter, causing CPI data to remain stubbornly high, the Fed is highly likely to fulfill the dot plot's rate hike projection in the second half of the year. Conversely, if supply chain pressures ease, interest rates could peak at the current restrictive level of 3.75%. Investors need to pay close attention to changes in core inflation and employment data over the coming months.

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