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US Federal Reserve kept the rates unchanged as widely expected but signaled 1 rate hike by the end of this year.

ICICIdirect Research 18 Jun 2026 DISCLAIMER

News: US Federal Reserve kept the rates unchanged as widely expected but signaled 1 rate hike by the end of this year. US central bank decided to maintain rates at 3.5% to 3.75% approved on 12-0 vote, fourth consecutive meeting with no change. Half of the FOMC members indicated that it may be necessary to raise rates this year, signaling growing concerns about inflation above central bank’s target. On the data front Fed revised down its projections for GDP and unemployment rate but increased the inflation expectations. It expects core inflation to rise to 2.3% this year and 2.5% in 2027. Unemployment rate projected to end the year at 4.3%. GDP growth projection was revised down to 2.2% this year lower than compared to March Projection of 2.4%. Inflation projections show Fed won’t hit its 2% target until 2028. Dot plot: While Fed chair didn’t cast in the dot plot, among rest 18 members, 9 policymakers projected that they see rate hike coming this year and 6 among these felt more than one quarter-point rate hike will be needed this year. On the other hand, 8 members believed that rates need to remain unchanged and 1 felt a single rate cut would be needed. US Dollar ended the day on positive note gaining 0.85% and U.S treasury yields advanced after US Federal Reserve held the interest rate steady, while Fed statement signaled policymakers expecting a hike in borrowing cost later this year. Treasury 10-year yield slipped to 4.439%, While 2-year treasury yield, which typically moves in step with interest rate expectations decline to 4.054%

View: US Federal Reserve rates are likely to remain unchanged in the next meeting as Fed will monitor the upcoming economic data and see how economy evolves before taking any further decision. Labor market has steadied giving more importance to inflation data now. Previously softening labor market was seen as constraint on keeping rates at elevated level, even if inflation continued to run above Fed’s target but the recent job data has shifted the image and chances of keeping rates at elevated levels have gone up. Policy debate within Fed has started changing its course from cutting rates to signaling possible rate hike. 

Impact: Neutral

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