By June, the Federal Reserve wasn’t just waiting for inflation to improve. It was becoming less confident that improvement would happen anytime soon. At its June 16-17 meeting, the Fed again kept its target interest rate between 3.50% and 3.75%. All 12 voting members supported the decision. The Fed said the economy was still growing at a solid pace. Productivity and business investment remained strong, and employment growth had kept pace with growth in the workforce.
Inflation, however, was still elevated, partly because of the energy shock and other supply problems.
The fact that rates stayed the same was not the most important part of the meeting. The forecasts were. In March, the median Fed official expected PCE inflation to finish 2026 at 2.7%. By June, that forecast had jumped to 3.6%. Core inflation rose from a projected 2.7% to 3.3%. Expected economic growth fell from 2.4% to 2.2%. The projected end-of-year interest rate moved from 3.4% to 3.8%. The inflation revision was especially large. A 0.9-percentage-point increase over only three months meant that officials had seriously changed their view of the year, not just made a small adjustment.
In March, it was reasonable to look at the Fed’s projections and expect at least some rate cuts later in 2026. By June, the median official expected the year to end with rates slightly above the midpoint of their current range. The projections weren’t a promise that the Fed would raise rates. But the idea of quick cuts had become much harder to defend. The June meeting minutes explained what had changed. Officials were worried about the continued effects of tariffs, higher energy and production costs connected to the Hormuz disruption and unusually strong investment related to artificial intelligence.
They believed the risk of inflation remaining above target had increased. The labor market was also becoming harder to read. The June employment report, released on July 2, showed that employers had added only 57,000 jobs. Unemployment was 4.2%. Just like the March jobs report, though, those figures came out after the Fed meeting. They could affect the Fed’s next decision, but they couldn’t have caused the June one.
The June Consumer Price Index fell 0.4%, the largest monthly decline since April 2020. Core CPI was unchanged. Headline inflation slowed to 3.5% over the year, while core inflation was 2.6%. There was one major timing issue. The report was released on July 14, almost a month after the Fed had met. The June inflation report can change how we look back at the economy that month. It can’t explain a decision made weeks earlier.
The headline looked better than the details. Energy prices fell 5.7% in June after rising during each of the previous three months. Gasoline alone fell 9.7%. That drop was big enough to pull the entire CPI downward, even though food prices were still increasing. Energy also remained 15.7% more expensive than it had been one year earlier. I kept coming back to how easy it would be to read “prices fell 0.4%” and decide the inflation problem was over. If I had only seen the headline, that would’ve been my first reaction.
The report was good. It just didn’t prove that everything had been fixed.
That report finally made the difference between lower prices and lower inflation click for me. Gasoline actually became cheaper between May and June. That was a real price decline. Most other products didn’t return to what they cost several years ago. Their prices either increased more slowly or stopped rising during the month. An economist can correctly say inflation is slowing. A family can correctly respond that groceries, rent and restaurant meals still cost much more than they used to.
Those statements do not contradict each other.
High school students noticed the change in gasoline prices more than they noticed the Fed’s meeting. Filling a car became cheaper during June, but eating out was still 3.4% more expensive than it had been a year earlier. Borrowing remained expensive too. Federal Reserve data released on July 8 placed the average rate on credit-card accounts actually being charged interest at 22.15%. For someone with a high salary, a few hundred dollars of credit-card debt might be manageable. For a teenager working limited hours, the interest can become a much bigger problem.
The Fed’s decisions matter even before most of us have mortgages. Interest rates affect a first credit card, a first car loan and whether a small balance quietly becomes a much larger one. June was genuinely good news. But one report couldn’t erase the tariff increases, energy shock and inflation from the previous five months.
It changed the conversation. It did not end it.