Reasoning
The Federal Reserve, under Chair Kevin Warsh, has signaled a hawkish pivot by holding rates steady and removing a prior cutting bias, with the June 2026 SEP median for year end 2026 funds rate at 3.8 percent, a significant upward revision from March's 3.4 percent. With nine of eighteen SEP participants projecting rates above the current target range of 3.50 to 3.75 percent, the probability of a further 50 basis point tightening in financial conditions during H2 2026 is elevated, as markets may price in additional rate hikes or a longer period of restrictive policy.Key uncertainty
The persistence and trajectory of inflation throughout H2 2026 will be the primary driver, as higher than expected inflation would necessitate further tightening, while a rapid cooling would allow for a less restrictive stance.