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Fed kept rates at 3.5‑3.75% on June 17, 2026; economist Greg Daco says hold, while Bank of America now projects three quarter‑point hikes to 4.25‑4.5% this
The Federal Reserve left its benchmark rate unchanged at 3.5%‑3.75% on June 17, 2026, but EY‑Parthenon chief economist Greg Daco warned that the Fed is likely to keep rates on hold despite inflation still running about twice its 2% target [1]. His view clashes with a new Bank of America forecast that calls for three 25‑basis‑point hikes before year‑end, pushing the funds rate to 4.25%‑4.5% [2].
| At a glance | |
|---|---|
| Fed rate range after June 17 meeting | 3.5%‑3.75% |
| Policymakers seeing at least one hike by year‑end | 9 of 19 (≈47%) |
| May PCE inflation (YoY) | 4.1% |
| Core PCE inflation (YoY) | 3.4% |
| BofA forecast hikes in 2026 | 3 hikes to 4.25%‑4.5% |
Daco argues that the current inflationary pressure is supply‑driven—higher energy prices and AI‑related component shortages—rather than the result of overheated demand. He notes that real after‑tax income was essentially flat in May, leaving consumers in an “income squeeze” that limits spending growth [1]. Because higher rates mainly curb demand, Daco contends that a 25‑ or 50‑basis‑point increase would do little to address these supply shocks, and could further weaken a fragile economy.
While Daco expects the Fed to stay put, a Reuters poll shows more than three‑quarters of economists also anticipate unchanged rates through the rest of 2026 [1]. However, Bank of America’s latest outlook breaks from that consensus, projecting three consecutive quarter‑point hikes in September, October and December, which would lift the federal funds rate to a range of 4.25%‑4.5% [2]. The bank cites a “unambiguously worse” inflation backdrop, with core PCE potentially reaching 3.5% in May—about 70 basis points higher than a year earlier—driven partly by tariffs and other one‑offs.
The split between a “hold” narrative and a hawkish three‑hike scenario creates uncertainty for equity and bond markets. A higher rate path would likely push yields up and strengthen the dollar, while also increasing financing costs for businesses and consumers. Conversely, a continued hold could keep yields low but leave inflation pressures unchecked, especially in sectors hit by supply constraints such as energy and technology components.
The clash between Daco’s supply‑shock argument and BofA’s aggressive hike forecast underscores a key question: whether the Fed will prioritize curbing stubborn core inflation or risk stalling a still‑fragile economy by tightening too quickly. The answer will hinge on upcoming inflation data and the Fed’s assessment of supply‑side pressures.
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AI-assisted synthesis by the TrendWatcher Editorial Desk · sourced from 2 outlets · Jun 28, 2026 · How we report
The Fed left its target range for the federal funds rate unchanged at 3.50%‑3.75% but signaled a more hawkish tone, with nine of 19 policymakers forecasting at least one rate hike by year‑end.
The May personal consumption expenditures (PCE) report showed headline inflation up 4.1% year‑over‑year and core PCE up 3.4%.
Daco argues that current inflation is driven by supply constraints such as higher energy prices and AI‑related semiconductor shortages, which higher interest rates cannot readily address.
More than three‑quarters of economists surveyed by Reuters expect the Fed to keep rates unchanged at 3.50%‑3.75% for the rest of 2026.
Some banks and analysts, including Bank of America and Deutsche Bank, forecast one or more 25‑basis‑point hikes later in 2026, while others, like Goldman Sachs, view hikes as unlikely.