Reasoning
With the federal funds target at 3.50 to 3.75 percent and the June 2026 SEP median projecting a year end 2026 rate of 3.8 percent, the policy stance remains moderately restrictive, and the University of Michigan one year inflation expectations series has remained below 4 percent in every reading since February 2024. Historical precedent shows this measure spikes above 5 percent only during energy shocks or when the funds rate is well below the inflation rate, neither of which is present in the current data. Recent statements from Chair Warsh that the June 17 meeting erased the prior cutting bias reinforce the view that inflation expectations will stay anchored below the 5 percent threshold through the second half of 2026.Key uncertainty
A sudden oil price surge above 120 dollars per barrel that feeds directly into consumer energy price expectations.