{"id":10366,"date":"2026-06-22T12:44:11","date_gmt":"2026-06-22T12:44:11","guid":{"rendered":"https:\/\/zacksim.com\/financial-professionals-insights\/?p=10366"},"modified":"2026-06-22T15:03:03","modified_gmt":"2026-06-22T15:03:03","slug":"fed-rate-cut-hopes-dwindle-as-new-data-changes-outlook","status":"publish","type":"post","link":"https:\/\/zacksim.com\/financial-professionals-insights\/fed-rate-cut-hopes-dwindle-as-new-data-changes-outlook\/","title":{"rendered":"Fed Rate Cut Hopes Dwindle as New Data Changes Outlook"},"content":{"rendered":"\n

The Fed\u2019s Window for Rate Cuts Just Got Smaller<\/strong><\/p>\n\n\n\n

For much of the past year, the market debate has centered on when the Fed would resume cutting interest rates. The June meeting, held this week, was circled as a distinct possibility for a pivot in monetary policy with Kevin Warsh as the new chairman.<\/p>\n\n\n\n

What we saw instead was a case study for why it rarely makes sense to try and predict Fed policy.<\/p>\n\n\n\n

The first factor has been volatility in the inflation data. The latest Consumer Price Index (CPI) report showed headline inflation rising to 4.2% year-over-year in May, up from 3.8% in April. A CPI reading with a 4% handle makes it very difficult for the Fed to justify easing policy, even if the underlying details are more nuanced than the headline suggests (more on that below). Core CPI rose 2.9% year-over-year in May, which showed that even without the energy wild card, inflation remains well above the Fed\u2019s 2% target.<\/p>\n\n\n\n

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Source: Federal Reserve Bank of St. Louis1<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n

With this data released a week prior to the Warsh\u2019s first meeting as Fed chair, the market had essentially ruled out a rate cut. What came as more of a surprise, however, was the general sense of a shifting posture amongst Fed officials, with updated projections signaling a growing appetite for tighter policy. Nine officials now see at least one rate increas<\/em>eby year-end, which is a substantial shift from earlier in the year.<\/p>\n\n\n\n

But as I mention earlier in this piece, investors should avoid concluding that higher rates are a given. Fed projections change, economic data change, and market expectations change alongside them. So, even though the market sold off on the day of the Fed meeting, I really don\u2019t see much insight to glean from it looking ahead. It\u2019s a short-term response to a long-term unknown.<\/p>\n\n\n\n

The CPI report itself shows why the picture remains complicated. Energy prices did much of the lifting in the headline number, but energy-driven inflation is not the same as broad-based inflation. For inflation to become a more serious market problem, higher energy costs would need to spread into wages, services, goods prices, inflation expectations, and corporate pricing behavior. But we haven\u2019t seen much of that at all.<\/p>\n\n\n\n

Core CPI rose only slightly on a year-over-year basis, from 2.8% to 2.9%, and on a month-to-month basis, core inflation actually cooled from 0.4% to 0.2%. Core goods inflation did not show a broad acceleration, food price increases slowed, and some services categories looked less heated than the headline number implied.<\/p>\n\n\n\n

To be sure, inflation is still too high, and the Fed has little reason to make a case for monetary easing. But it also does not look like the return of an inflationary regime, like the 2021\u20132022 inflation environment. That inflation surge followed a sharp expansion in money supply and fiscal support, which helped fuel demand and gave consumers and businesses more capacity to absorb higher prices. Today, money supply growth is far more subdued, and consumers appear more selective and price-sensitive.<\/p>\n\n\n\n

From here, investors should watch whether inflation remains concentrated or starts to spread. Core services, wage growth, inflation expectations, and corporate margins will be especially important. If energy-driven inflation begins showing up across a wider range of goods and services, the Fed may have a more serious problem. If it does not, worries that the Fed may tighten this year are probably overblown.<\/p>\n\n\n\n

Bottom Line for Investors<\/strong><\/p>\n\n\n\n

Higher inflation coupled with the Fed\u2019s latest projections shows that some officials are now more open to hikes than cuts. But investors should be careful not to turn that into a firm forecast.<\/p>\n\n\n\n

The same lesson applies now that applied when markets were pricing-in cuts: Fed policy is difficult to predict because it depends on data that can change quickly. The more important takeaway, in my view, is that while inflation remains sticky, it is not clearly resurgent. Energy is lifting the headline number, while core inflation has not shown the kind of broad acceleration that would suggest a return to the 2021\u20132022 inflation regime.<\/p>\n\n\n\n

Rate cuts may be off the table for now, but that does not automatically mean the Fed is headed into another aggressive tightening cycle. As long as inflation pressures remain contained and earnings hold up, markets can work through a higher-for-longer rate environment. The key is to avoid building an investment strategy around the next Fed meeting; it does not matter as much as many investors tend to think it does.<\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Higher inflation and the Fed\u2019s latest projections mean that some officials now lean more toward hikes than cuts. However, investors should not take any of these signals as a firm forecast. <\/p>\n","protected":false},"author":4,"featured_media":9959,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[181,1],"tags":[182],"class_list":["post-10366","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial-professionals","category-mitch-on-the-markets","tag-feature"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/10366","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/comments?post=10366"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/10366\/revisions"}],"predecessor-version":[{"id":10369,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/10366\/revisions\/10369"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/media\/9959"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/media?parent=10366"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/categories?post=10366"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/tags?post=10366"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}