The majority of economists surveyed by Reuters between June 23 and June 25 now expect the Federal Reserve to leave its policy rate unchanged for the remainder of the year, a shift that runs counter to market pricing which currently implies two rate increases. The central bank kept its policy target at 3.50% to 3.75% at its most recent meeting, and forecasters have responded to the Fed's recent actions and commentary by trimming expectations for further moves.
Inflation remains elevated, running above 4% - the highest level in more than three years and roughly double the Fed's 2% target - even as headline energy costs have eased back toward pre-conflict levels. Oil prices, in particular, have fallen to levels near those seen in February, before the outbreak of military hostilities involving the United States, Israel and Iran. At the same time, the economy has continued to post solid growth and labour market indicators have improved, complicating policymakers' decisions.
In his first post-meeting news conference, the new Fed chair underscored returning inflation to the central bank's 2% objective as the primary priority, with relatively little emphasis on the labour market. That emphasis - combined with the Fed's decision to stand pat on rates this month - has led many economists to conclude that the Federal Open Market Committee (FOMC) is more likely to keep the federal funds rate where it is for the near term rather than move to tighten policy further.
"At the moment, holding rather than hiking is the most appropriate stance. The committee is effectively split right down the middle ... there are a couple that would be swayed by this aggressive move in energy prices," said Josh Hirt, senior U.S. economist at Vanguard, who had previously been pencilling in a cut. His comment reflects how recent shifts in commodity prices and the balance of risks are influencing individual committee members and private forecasters alike.
Fed projections released in the quarterly outlook - excluding the new chair who abstained from the projections - showed that nine of 19 policymakers anticipate at least one hike by the end of 2026. That distribution of views within the committee informs private-sector expectations: over three-quarters of economists in the Reuters poll now forecast the federal funds rate will remain steady through the end of 2026, up from about 70% prior to the June meeting and from just under half the month before.
Poll median forecasts also indicate rates unchanged through the end of 2027, a notable shift from expectations only weeks earlier that had included a cut. Nearly 40% of respondents adjusted their own rate forecasts upward this month, adding to a pattern of revisions that most participants had already begun earlier in June.
From a cross section of forecasters, 15 respondents - including five primary dealers - now expect at least one hike this year, while nine expect cuts. That marks the first time since 2023 that those projecting hikes outnumber those forecasting cuts. "If we continue to get data that moves in this direction, it's going to be extremely difficult to justify not moving rates higher," Vanguard's Hirt said, describing the circumstances that could push the Fed toward a more hawkish stance.
Several private forecasters adjusted their outlooks materially after the June meeting. Stephen Juneau, a U.S. economist at Bank of America, said his outlook now calls for three rate hikes this year - a markedly more aggressive view than his forecast heading into the meeting. Citibank, by contrast, continues to project two cuts this year, underscoring the range of views that still exists among professional forecasters.
Higher consumer prices remain a political flashpoint. The recent inflation uptick compounds price pressures stemming from sweeping import tariffs implemented by the presidential administration, a factor the article notes as elevating the cost of living. That dynamic creates political risk for the president and his party ahead of November midterm elections, and feeds public debate over monetary policy. "The public does not like higher interest rates but they dislike inflation even more," said Alex Pelle, senior U.S. economist at Mizuho Securities USA. He noted the inevitability of political commentary on Fed policy, while emphasizing the central bank's responsibility to prioritise its mandate.
Beyond the data and politics, economists are paying close attention to how the Fed will communicate under its new leader. At the June meeting the central bank issued a pared-down policy statement and the chair signalled a move away from forward guidance, announcing a broad review of Fed operations. Some forecasters worry that reducing guidance could make it harder for the Fed to transmit its intentions clearly to markets.
"The Fed still needs forward guidance to get its message across," said Bank of America's Juneau. He argued there are more advantages than disadvantages to maintaining some level of guidance rather than reverting fully to a much more opaque era when the Fed provided limited cues about future policy. How the central bank balances brevity with clarity will be a key variable shaping market expectations and economic outcomes over the months ahead.
Poll details and takeaway
- Reuters polled economists from June 23 to 25; over three-quarters now expect rates to be held through end-2026.
- Inflation remains above 4% while oil prices have eased back to February levels and labour market conditions have improved.
- Fed projections (excluding the chair who abstained) show nine of 19 policymakers expect at least one hike by end-2026, reflecting divergence within the FOMC.