The Federal Reserve is expected to leave interest rates unchanged at 3.5%-3.75% for the fourth consecutive meeting in June, with the decision due Wednesday. The announcement will be accompanied by the Summary of Economic Projections (SEP) and a press conference by new Fed Chair Kevin Warsh, who took over earlier this year. Markets are pricing in about a 58% probability that the Fed will raise rates by a quarter point at least once by the end of 2026, according to the CME FedWatch Tool.
Why the Fed Is Likely to Stay Put
The central bank's March SEP showed policymakers' median projection still pointed to a single 25-basis-point cut in 2026, unchanged from the December 2025 forecast. But since then, oil prices have dropped sharply and economic data has remained strong, complicating the outlook. TD Securities analysts expect the policy rate to remain unchanged but with likely hawkish changes in communications — including dropping the easing bias and hawkish adjustments to the SEP and dot plot. That would signal a shift away from the earlier expectation of cuts and toward a more neutral or tightening stance.
Oil Prices Slide After Strait of Hormuz Deal
Crude oil (WTI) has fallen below $80 per barrel after the US and Iran reached a framework deal to reopen the Strait of Hormuz. That's a steep drop from the spike above $110 in mid-March, which followed a joint US-Israel attack on Iran on February 28. The reopening of the strait — a critical chokepoint for global oil shipments — has relieved supply concerns and taken pressure off inflation, one factor that could influence the Fed's future rate decisions.
Market Expectations Shift Toward a Possible Hike
Despite lower oil prices, the US dollar has remained supported by strong economic data and interest rate expectations, according to ING strategists. But they note the greenback needs a nod from policymakers that rate hikes are a real possibility to sustain its strength. The CME FedWatch Tool's 58% probability of a hike by end-2026 reflects growing market speculation that the next move could be up, not down. The updated SEP and Warsh's press conference will be closely watched for any hint that the Fed is preparing to raise rates, especially given the hawkish signals TD Securities expects.
The immediate question is whether Chair Warsh will use Wednesday's press conference to explicitly flag the risk of a future rate hike — or stick with the current wait-and-see posture that has left rates unchanged since last fall.
