Fed leaves rates unchanged at 3.5‑3.75% as new chair Warsh takes helm

The Federal Reserve kept the federal‑funds target range at 3.5%‑3.75% on June 17, its first meeting under new chair Kevin Warsh, while members of the policy committee signaled a split view on future hikes【2】.

Rate decision and policy outlook

Warsh’s inaugural press conference confirmed that the benchmark rate would stay steady, meaning short‑term borrowing costs for consumers—credit cards, personal loans, and most variable‑rate products—remain unchanged【2】. The unchanged rate also preserves higher yields on savings accounts and CDs, benefitting savers. Warsh emphasized the Fed’s “price stability” mandate, noting limited ability to influence specific commodity prices such as gasoline or groceries, but pledging to prevent broader inflationary spillovers【2】.

Inflation, growth and the prospect of future hikes

The Cleveland Federal Reserve estimates consumer inflation running close to 4% year‑over‑year, a level still above the Fed’s 2% target and a key factor behind the likelihood of additional tightening【1】. At the same time, the U.S. economy is projected to grow about 2.5% in the second quarter, supported by easing oil prices after the Iran conflict, which should reduce energy‑price headwinds【1】.

Within the Federal Open Market Committee, nine members now see room for a rate increase before the end of 2026, compared with eight who prefer to hold the range steady and one who favors a cut【2】. This split reflects a shift from the three rate cuts the Fed delivered late last year, driven by concerns over a cooling labor market, to a more hawkish stance as inflation resurges amid solid job growth.

Market context and earnings backdrop

The rate hold came as technology earnings expectations remain robust: FactSet projects Q2 tech earnings growth of 63.2% year‑over‑year and full‑year growth of 47.5% YoY【1】. Despite a recent sell‑off in AI‑heavy stocks, the broader market’s performance is buoyed by these earnings forecasts and by the resilience of the U.S. economy. However, elevated valuations—average price‑to‑earnings multiples near 21.4× for 2026—pose a counterweight to further equity gains【1】.

What to watch

• June non‑farm payrolls (expected +118,000 jobs, unemployment steady at 4.3%) – labor market strength will influence inflation dynamics.
• FOMC meeting schedule later in the year – any shift in the voting split could signal a move toward a rate hike.
• Tech earnings releases beginning in late July – actual growth versus FactSet forecasts will test the sustainability of the AI spending cycle.

The Fed’s decision to hold rates underscores a delicate balance: inflation remains above target, yet the economy’s growth and strong tech earnings provide a buffer. How the policy split evolves and whether inflation eases will shape the trajectory of rates and, by extension, risk‑asset performance for the rest of 2026.