Fed Holds Rates Steady at 3.5%-3.75% as Inflation Concerns Delay Rate Cuts Through 2026

The Federal Reserve has maintained its benchmark federal funds rate at 3.5% to 3.75% for three consecutive meetings, signaling that interest rate cuts are unlikely for the remainder of 2026 as persistent inflation and geopolitical turmoil complicate the monetary policy outlook.

At its April 28-29 meeting, the FOMC voted 8-4 to hold rates steady — the first time since October 1992 that four officials dissented from a decision. Governor Stephen Miran voted for a quarter-point cut, while three other members objected to language suggesting the central bank would eventually resume cutting.

Inflation Remains Sticky

The Fed’s preferred inflation gauge, the core PCE deflator, remains above the 2% target, running at approximately 2.8% annually. Rising energy costs from the Middle East conflict have added upward pressure, with oil prices above $100 per barrel feeding through to transportation and production costs across the economy.

Fed Chair Jerome Powell acknowledged the challenging environment, noting that “the forecast is that we will be making some progress on inflation, not as much as we had hoped, but some progress.” Powell emphasized the committee’s data-dependent stance while acknowledging that geopolitical risks make the outlook unusually uncertain.

Dot Plot Signals One Cut at Most

The March 2026 Summary of Economic Projections revealed that the median FOMC participant expects just one 25-basis-point cut this year, bringing the year-end rate to 3.4%. The “longer run” neutral rate has drifted higher to 3.0%, suggesting that the era of ultra-low interest rates is definitively over.

Market pricing aligns with this cautious outlook. Polymarket prediction markets show just a 3% probability of a rate cut at the June meeting, and CME FedWatch data suggests zero rate movements priced in for the remainder of 2026.

Global Central Bank Divergence

The Fed’s caution contrasts with other major central banks. The European Central Bank is now facing pressure to hike rates to 2.0% or higher amid its own inflation concerns, while the Bank of Japan continues its gradual normalization from near-zero rates. This divergence is strengthening the dollar and adding to emerging market debt pressures.

The next FOMC meeting is scheduled for June 16-17, where an updated dot plot will be released. Markets will be watching closely for any shift in the committee’s inflation outlook or rate path.