Fed Keeps Rates Unchanged as Inflation Projections Move Higher

The Federal Reserve on Wednesday left its benchmark interest rate unchanged at 3.50%–3.75%, extending its pause for a fourth straight meeting. Updated projections signaled a more inflation-wary outlook than markets had been anticipating, with the Fed's preferred price measure, the PCE index, showing its 2026 forecast raised to 3.6% from 2.7%. The meeting marked the first FOMC decision under Chair Kevin Warsh, who succeeded Jerome Powell. Powell remains on the Board of Governors. The post-meeting statement was shorter and removed prior wording that had suggested an inclination toward near-term rate cuts. Officials voted 19–0 to hold policy steady. In the new projections, 9 of the 19 policymakers now see at least one rate increase before year-end, and 6 anticipate two or more. The shift contrasts with market sentiment for much of 2025, when investors focused on the 75 basis points of rate cuts delivered late in the year. Fed officials pointed to energy prices as a key driver of the firmer inflation outlook. Elevated oil prices, linked to ongoing geopolitical tensions in the Middle East, are feeding into broader inflation dynamics. Many economists still expect the federal funds rate to remain within the current range through 2026. Markets reacted quickly. Equities fell as the possibility of higher borrowing costs pressured valuations. Bond yields adjusted as traders weighed the risk that the next policy move could be an increase rather than a cut. The U.S. dollar strengthened, while gold moved as investors recalibrated risk positioning. With late-2025 easing having supported risk assets, any reversal—or a credible threat of one—reduces a major source of support.