The Fed held its key interest rate steady at the June meeting of the Federal Open Market Committee (FOMC), the first meeting presided over by new Fed Chair Kevin Warsh.
The Fed has been on hold since last year. Its most recent move was in December 2025, when it cut the federal funds rate by 0.25 of a percentage point, bringing it to its current range of 3.50% to 3.75%.
Why is the Fed on hold?
Coming into 2026, many investors expected the Fed to cut rates further over the course of the year.
But since then, the conflict with Iran and resulting disruptions to global energy and commodity markets have sparked a resurgence of inflation. The overall strength of the US economy has added further fuel to inflationary pressures. In May, the year-over-year inflation rate reached 4.2% as measured by the Consumer Price Index, the highest rate in 3 years.
“The Fed doesn’t want to be cutting into rising inflation,” says Andrew Garvey, lead monetary policy analyst on Fidelity’s Asset Allocation Research Team.
Plus, with the unemployment rate holding fairly steady so far this year, concerns about the job market have eased—shifting the Fed's focus more squarely toward inflation risks.
“With the US economy remaining resilient in the face of yet another supply shock, the Fed is more concerned about upside risks to inflation than downside risks to labor markets,” says Aditi Balachandar, research analyst on Fidelity’s fixed income team. “The bar to cut rates is now higher than it was at the start of the year. But hikes may be premature. This likely leaves the Fed with a wait-and-see strategy of staying on hold.”
Could rate hikes follow later in the year?
Investors had been increasing their bets that the Fed may hike rates before year-end, though those expectations have declined somewhat following news of a potential deal with Iran. Derivatives markets still suggest investors see a nearly 60% chance of at least one rate hike by the end of the year.
Whether the Fed does hike rates may depend on how inflation, inflation expectations, and the job market unfold from here. If inflationary pressures gather steam and spread beyond energy prices into a wider range of goods and services, it may further increase the likelihood of hikes. By contrast, if energy-market disruptions ease and inflation pressures prove more contained or short-lived, the case for rate hikes could weaken.
Complicating the outlook, investors are still learning how Chair Warsh will approach the task of leading the central bank. Warsh has indicated, for example, that he believes the Fed should potentially tell investors less about its point of view, and avoid overcommitting to any future course of action. (Learn more about how Warsh has described his vision for the Fed.)
What should investors do now?
Rather than trying to forecast the path of interest rates, many investors might be better served by focusing on a plan that’s suited to their goals, time horizon, and risk tolerance, that they can stick with through a variety of interest-rate and market environments.
If you need help making a plan (or making one you can stick with), you can learn more about connecting with a financial professional.