Fed Holds Rates Steady as Spotlight Shifts to New Era Under Warsh

Fed Decision on Interest Rates — June 17, 2026

• Decision: The Federal Reserve (Fed) left interest rates unchanged at its fourth straight monetary policy meeting.

• Target Range: 3.5% to 3.75%

• Vote: All 12 voting members of the Federal Open Market Committee (FOMC) agreed to hold interest rates steady. This marked the first unanimous decision since last June.

The Fed also released its quarterly dot plot, which reveals policymakers’ projections for short-term interest rates. The latest forecasts suggest a rate hike is now more likely than a rate cut:

• Among the 19 FOMC participants, nine projected at least one rate hike before year-end. In March, no Fed official forecasted a 2026 rate hike.

• Eight policymakers expect the Fed to hold rates steady through year-end.

• One FOMC participant penciled in a rate cut by year-end.

• New Fed Board Chair Kevin Warsh, who favors reining in the Fed’s forward guidance, didn’t participate in the quarterly dot plot.

Why Did the Fed Leave Rates Unchanged?

Amid elevated inflation, policymakers maintained their wait-and-see approach to interest rate policy. Higher energy prices stemming from the Iran conflict have pushed inflation higher. Meanwhile, economic growth has held steady, and the job market has remained robust.

The Fed likely wants to assess how peace efforts in the Middle East will affect oil prices and the broader inflation rate.

How Will the Fed Change Under Kevin Warsh?

Along with announcing the rate decision, Warsh outlined his strategy for reshaping the Fed. The change surfaced with the Fed’s statement, which was notably shorter and simpler than previous statements. Warsh’s version dropped all language associated with forward guidance.

The statement ended with a single statement: “The Committee will deliver price stability.” It contained no mention of the Fed’s employment mandate or the data that policymakers will use for decision-making.

Additionally, Warsh opened his first press conference by announcing five independent task forces to revamp Fed operations. The new chair said he would tap internal and external experts to review and revise:

• Fed communications. Warsh seeks to simplify Fed communications, including post-meeting statements and the Summary of Economic Projections (SEP), and to reduce market reliance on Fed commentary.

• The Fed’s balance sheet. This task force will assess the composition, benefits and risks of the central bank’s nearly $7 trillion balance sheet and “ample reserves” philosophy.

• Data. Warsh wants to replace the Fed’s old-fashioned and outdated data sources with real-time information and cutting-edge data-gathering methods.

• Productivity and jobs. This team will explore the impact of artificial intelligence and other emerging technologies on the labor market and economy.

• Inflation framework. Warsh seeks to reevaluate the drivers of inflation and the strategies that promote price stability.

What Did the Fed Say About Inflation and Employment?

Despite persistently high inflation, mostly due to energy supply shocks, Warsh insisted the Fed will achieve its key objective of price stability. He noted the Fed is “unambiguously and unanimously” committed to delivering a target inflation rate of 2%.

Regarding the labor market, he noted that job gains have kept pace with workforce growth, and the unemployment rate has remained low. Warsh characterized the economy as expanding at a solid pace. This stability should allow the Fed to focus on fighting inflation, which Warsh noted remains a burden on U.S. households.

“If we do our job, we can make strong growth, low prices and strong employment mutually compatible,” Warsh said.

What’s the Fed’s View of the Overall Economy?

The June FOMC meeting also included the Fed’s quarterly SEP, which differed sharply from the forecast issued in March. The median projections revealed:

• A slight slowdown in 2026 gross domestic product (GDP), from 2.4% to 2.2%.

• A slight decline in the unemployment rate, from 4.4% to 4.3%.

• Higher overall inflation, from 2.7% to 3.6%, as measured by the Personal Consumption Expenditures (PCE) index.

• Higher core PCE inflation, from 2.7% to 3.3%.

• An uptick in the federal funds rate outlook, from 3.4% to 3.8%.

Where Are the Biggest Opportunities/Risks in the Bond Market?

Looking ahead, we expect steady economic growth, rising inflationary pressures and a less communicative Fed. While interest rate volatility has remained low, we expect it may increase alongside the Fed’s limited forward guidance.

Rates may be rangebound in the near term, but positioning along the yield curve still matters. That’s why we’re generally avoiding longer-duration securities, which are more vulnerable to interest rate volatility.

Monetary policy will remain an important consideration for investors, but government spending policies are also becoming a key driver. With elevated federal deficits and rising interest costs, more Treasury supply is coming to market, helping keep bond yields higher. Accordingly, we believe income potential should rise.

This backdrop is creating a more complex scenario for bond investors, underscoring the importance of diversification and nimble portfolio management.

In the corporate sector, credit fundamentals appear solid, but elevated valuations reinforce the importance of rigorous research and thoughtful security selection. We’re focused on themes and events in our search for value. Mergers and acquisitions, rising stars (companies poised to jump from below-investment-grade status to investment-grade status) and company-specific events have created attractive opportunities.

Elsewhere, we’re taking a similar approach, seeking to identify sectors and subsectors where risk/reward is most compelling. We believe select asset-backed securities, including those backed by small business loans and higher-quality auto and credit card debt, offer such potential. In our view, certain mortgage-backed securities may also offer solid risk/reward potential in the current climate.