Reasoning
The Federal Reserve's current hawkish stance, as indicated by the unchanged federal funds target range of 3.50 to 3.75 percent and the June 2026 SEP median forecast for the year end 2026 rate at 3.8 percent, suggests a restrictive monetary policy. This, combined with nine of eighteen SEP participants projecting rates above the current target, implies that sustained economic growth sufficient to push manufacturing into expansion territory (PMI above 50) for three consecutive months in H2 2026 is possible, but not guaranteed, as higher borrowing costs could dampen demand.Key uncertainty
The degree to which inflation pressures abate or reaccelerate throughout H2 2026, which will dictate the Fed's resolve to maintain restrictive policy or consider rate adjustments.