Fed Holds Rates Steady but Signals Possible Further Hikes in 2026

Huoxing Finance reports: On June 18, overnight, the Federal Reserve held its first FOMC meeting since Waugh’s appointment, as expected, keeping the federal funds rate target range unchanged at 3.50% to 3.75%. The decision was unanimously approved by a 12-0 vote. What truly surprised markets was the dot plot: among the 18 officials who submitted projections, nine anticipated at least one more rate hike this year, eight expected rates to remain unchanged, and one forecast a cut. The median federal funds rate projection for the end of 2026 was raised from 3.4% in March to 3.8%. Meanwhile, the Fed significantly revised up its 2024 PCE inflation forecast to 3.6% and core PCE inflation to 3.3%, signaling that combating inflation has once again become the policy priority. Market pricing swiftly turned hawkish: before the meeting, traders priced in about a 60% chance of a rate hike this year; after the meeting, expectations for at least one hike rose to over 80%. In his press conference, Waugh conveyed a similarly cautious message—providing less forward guidance and relying more on actual data. He explicitly stated that he did not submit a dot plot projection and noted that traditional forward guidance is inappropriate under current conditions. Waugh repeatedly emphasized that the FOMC’s commitment to returning to the 2% inflation target is “clear and consistent,” and stated that only one policy proposal was on the table during this meeting, with no discussion of alternatives. He also announced the establishment of five working groups to review the Fed’s communication strategy, balance sheet, data sources, productivity and employment, and inflation framework—indicating that under Waugh’s leadership, the Fed may become more concise and make fewer commitments, but will take a tougher stance on inflation. Market reaction followed a typical “hawkish hold” pattern: U.S. equities turned from gains to losses, with the S&P 500 closing down 1.2%, the Nasdaq down 1.3%, and the Dow Jones down approximately 507 points. The two-year U.S. Treasury yield rose sharply, reflecting elevated expectations for年内加息. The dollar strengthened simultaneously, pushing the DXY to multi-month highs, while gold came under pressure due to rising real yields and a stronger dollar. Among risk assets, Bitcoin had already declined to around $65,500 before the meeting; after the announcement, sentiment across crypto markets remained pressured, briefly dipping below $64,000. If the Fed reopens the door to rate hikes, liquidity expectations will tighten, prompting repricing of high-valuation tech stocks, crypto assets, and gold.