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Top economist Greg Daco warns the Fed may hold rates steady despite inflation, with supply-driven pressures and fragile economy, 4.1% inflation rate and 3.4%
| At a glance | |
|---|---|
| Inflation Rate | 4.1% |
| Core PCE | 3.4% |
| Fed Rate | 3.50%-3.75% |
| Expected Rate Hike | 77% odds of a quarter-point hike by year-end |
The shift in the Fed's stance began at the June 17 meeting, with a hawkish turn from the prior meeting, when no policymaker had penciled in a hike [1]. The inflation debate was further fueled by the May PCE report, which showed headline inflation rising 4.1% from a year earlier and core PCE climbing 3.4% [1]. Daco argues that the current inflationary pressures facing the Fed are not primarily driven by overheated demand, but rather by supply pressures, such as higher energy prices and the strain of AI on limited resources [1].
The consensus among experts is still for a long hold, with now a louder minority warning that hikes are back on the table [1]. According to a Reuters poll, more than three-quarters of economists expect the Fed to keep rates unchanged at 3.50% to 3.75% through the rest of 2026 [1]. However, some contrarian views, such as those from Andrew Hollenhorst, chief U.S. economist at Citi Research, suggest that the economy may require rate cuts instead of hikes [2].
The real significance of Daco's warning lies in the potential for the Fed to hold rates steady despite inflation, highlighting the complexity of the current economic landscape and the challenges faced by policymakers. As the economy continues to evolve, it remains to be seen how the Fed will balance its dual mandate of maximum employment and price stability.
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AI-assisted synthesis by the TrendWatcher Editorial Desk · sourced from 2 outlets · Jun 30, 2026 · How we report
The federal funds rate target range has been held at 3.5% to 3.75% since December 2025.
Some officials are concerned that persistent inflationary pressures, exacerbated by factors like AI-driven demand and supply chain disruptions, may require higher interest rates.
No, while Fed policy influences borrowing costs, the central bank does not directly set mortgage rates.
Traders on the Kalshi platform estimate a 76% probability that there will be no interest rate cuts throughout 2026.