From Rate Cuts to Rate Hikes?

For the week ended 6/20/26.

If you listened to Wall Street six months ago, the debate centered on how many interest-rate cuts the Federal Reserve would deliver in 2026. Fast forward to last week's FOMC meeting and the conversation has changed dramatically. Instead of asking when rates will fall, investors are now quietly asking whether the Fed's next move might actually be...up.

The Federal Reserve unanimously held its benchmark rate steady at 3.50%–3.75%, but the real story was buried inside the updated economic projections. Nine of the nineteen Fed officials now expect at least one rate increase before year-end. Just three months ago, not a single policymaker projected a hike. Meanwhile, only one official still expects a rate cut, down from twelve in March.

That's quite a pivot.

The reason? The economy continues to run hotter than expected. The combination of the AI investment boom, resilient consumer spending, and the inflationary effects stemming from the Iran conflict have forced the Fed to acknowledge what many investors hoped wasn't true: inflation remains stubbornly alive.

For consumers, this likely means borrowing costs aren't coming down anytime soon. Credit cards, auto loans, and other short-term financing remain expensive, while mortgage rates continue to drift higher alongside Treasury yields. If you were hoping for a meaningful refinancing opportunity this summer, you may want to keep mowing the lawn instead.

Markets, meanwhile, had a solid week. Foreign stocks led the way with a robust 4.5% gain, followed by domestic equities at 1.5%. Bonds managed to break even – a feat worthy of at least a polite golf clap – while publicly traded REITs declined 2.1% and commodities fell 2.2% as traders once again convinced themselves an Iran ceasefire would hold. Unfortunately, by the weekend Iran had reportedly closed the Strait of Hormuz, proving once again that geopolitical forecasts have approximately the same shelf life as a carton of milk left in the Arizona sun.

Year-to-date, commodities continue to lead all major asset classes with a gain of 17.7%, followed by foreign equities at 15.7% and global REITs at 12.4%. Bringing up the rear? Domestic bonds, with a blistering return of just 0.5%. And for those perennial bond bulls, remember this: if inflation has already risen 2.4% this year, your "safe" investment has quietly lost purchasing power. Sometimes avoiding volatility simply means accepting a different kind of risk.

Looking ahead, the economic calendar is relatively light. Thursday brings the final estimate of first-quarter GDP along with the Fed's preferred inflation gauge, Core PCE. Given last week's surprisingly hawkish tone, expect both releases to receive more attention than they normally would.

Until then, enjoy the first full week of summer. May your cold brew stay cold, your golf ball stay in the fairway, and may economists eventually become as good at forecasting as they are at revising last month's forecasts.

Good morning. 

Interesting data point of the week.

Source: Visual Capitalist

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