Update, July 17, 2026. The July scare has unwound, but do not read it as an all-clear. President Trump proposed a 20% toll on Strait of Hormuz cargo on July 13 and dropped it on July 14, and with that specific threat off the table, market-implied odds of a July 29 hike fell back to around 9%. September has not followed it down: CME futures on July 16 put the September 16 meeting at roughly a coin flip (about 51% hold, 44% a quarter-point hike, 5% a half-point), so September, not July, is now the meeting that matters. The catch is that the toll reversal is not the same as the conflict ending. US forces struck Iran for a sixth consecutive night on July 16, and Qatar intercepted Iranian fire on July 17, so the shooting war escalated even as the toll came off, and Brent is still near $84 to $85. In short, the near-term Fed risk eased while the oil and geopolitical risk rose. As always, these are market-implied probabilities, not Fed decisions.
Update, July 15, 2026. The rate path has whipsawed. June CPI, released July 14, came in cool (headline 3.5% year on year, core 2.6%), and the odds of a July Fed hike briefly collapsed to around 17 to 20%. Within hours they reversed. A sharp escalation in the conflict between the US and Iran around the Strait of Hormuz pushed Brent crude to a one-month high near $85, and market-implied odds of a hike climbed back to roughly 43 to 46% for the July 29 meeting and about 62% for September. The lesson is that a single oil shock can flip an inflation narrative overnight: the June disinflation was energy-led, and that energy relief is now unwinding. Chair Warsh, testifying to Congress this week, has kept to his practice of not signaling the path in advance. As always, these are market-implied probabilities, not Fed decisions.
Update, July 9, 2026. The minutes of the Fed’s June 16-17 meeting, released on July 8, leaned hawkish and pushed the odds back toward a hike after the early-July jobs wobble. The record shows the committee deliberately dropped the “easing bias” language that had signalled cuts, and that “a few participants” argued there was already a case for raising rates, though all supported holding at that meeting. Participants described inflation as still well above the 2% goal. A fresh oil-price spike, tied to tension around the Strait of Hormuz, added to that worry: market-implied odds of a September hike rose again, and the 10-year Treasury yield climbed toward 4.6%, a multi-week high. The near-term picture is now finely balanced between a hold and a hike, and it will keep moving with the June CPI report on July 14 and the next jobs reports. As always, these are market-implied probabilities, not Fed decisions.
Update, 3 July 2026: The June jobs report, released on 2 July, came in soft and has weakened the case for a July rate rise. US employers added just 57,000 jobs, well below the roughly 115,000 expected, and the April and May figures were revised down by a combined 74,000. The unemployment rate edged down to 4.2%, but mainly because people left the workforce (participation fell to about 61.5%, close to a five-year low), so it is not the strength signal it looks. Markets moved quickly: CME FedWatch odds of a rise at the 29 to 30 July meeting fell from about 30% to about 22%, making a hold the clear favourite, and the two-year Treasury yield eased to about 4.13%. The base case set out below, a possible hike, is now the minority scenario; a hold is what the market expects. Source: BLS Employment Situation, June 2026.
Update, June 28, 2026. Since this piece published, the market has started to price a meaningful chance of an earlier move, not just a September one. As of June 27, CME futures implied roughly a 31% chance of a quarter-point hike at the nearer July 29-30 meeting, with about a 69% chance of a hold, alongside the roughly 73% odds of a hike by September discussed below. September is still the base case for the first increase, but July is no longer off the table. These are market-implied probabilities, not Fed decisions, and they will move with every inflation and jobs report between now and each meeting.
In short
- May core PCE came in at 3.4% over the year (and 0.3% on the month), the highest core reading since October 2023. Headline PCE was 4.1%. Core PCE is the Federal Reserve’s preferred inflation gauge, so a two-year high is the opposite of what a rate cut needs.
- The same morning brought a stronger economy, not a weaker one. The third estimate of first-quarter GDP was revised up to 2.1% annualized from 1.6%, and weekly jobless claims fell to 215,000, beating expectations. Neither number gives the Fed a reason to ease.
- Markets have moved to price a rate increase, not a cut, as the more likely next move. After the data, futures implied roughly a 73% chance of at least one quarter-point hike by the September meeting, and Bank of America dropped its call for a hold to forecast three hikes this year. A hike is now the market’s base case for 2026.
- The Fed held its target range at 3.50% to 3.75% on June 16-17, and its own June projections already pointed to a year-end rate near 3.8%, which implies one increase rather than a cut.
- For households this hardens the higher-for-longer picture. Savings yields near 4% to 5% are more likely to persist, the 30-year fixed mortgage sat at 6.49% in late June, and the same inflation that worries the Fed keeps the 2027 Social Security cost-of-living adjustment elevated.
- This is two-way risk, not a certainty. One hot month is not a trend, and a clear cooling in the summer data would put a cut back on the table. The next decision is July 29-30.
For most of 2024 and 2025, American savers and borrowers could lean on one assumption: inflation was cooling, the Federal Reserve was cutting, and money would keep getting a little cheaper. That assumption has been unwinding for a few months. On the morning of June 25, a single batch of government data finished the job.
The Bureau of Economic Analysis reported that the Personal Consumption Expenditures price index, the Fed’s preferred measure of inflation, rose 4.1% over the year through May at the headline level, with the core measure that strips out food and energy up 3.4%. That core figure is the highest since October 2023. The same release showed personal income up 0.7% on the month and spending up 0.7% in dollar terms. Minutes earlier, a separate report revised first-quarter economic growth up to 2.1% annualized from 1.6%, and the weekly jobless-claims figure fell to 215,000, better than forecast. Inflation firmer, growth stronger, the job market still tight. For a central bank that needs a reason to cut, none of that helps.
By the close, futures markets were no longer treating the Fed’s next move as a cut. They were pricing a hike, with roughly a 73% chance of at least one quarter-point increase by the September meeting, and Bank of America went further still, dropping its call for a hold and forecasting three quarter-point increases in 2026, in September, October, and December. This piece explains how the base case flipped, what the Fed’s own June projections already told us, and what a 2026 hike risk means in practice for people with savings, mortgages, and retirement accounts. For the fuller story of how the Fed got here, with a new chair and a divided committee, see our earlier piece on Warsh’s first FOMC and the move from rate cuts to a rate hike.
Why core PCE at 3.4% matters more than the headline
There are several inflation gauges, and they are not interchangeable for policy purposes. The Consumer Price Index gets the headlines, but the Fed targets PCE inflation, and within that it watches the core reading most closely because food and energy prices swing too sharply month to month to guide interest-rate decisions. So the number that matters most for the Fed is the one that just hit a two-year high: core PCE at 3.4% over the year, and 0.3% on the month.
Put that against the Fed’s own yardstick. The committee targets 2% PCE inflation over time, and its June projections pencilled in year-end 2026 inflation around 3.6%. May’s 4.1% headline is running above even that raised path, and the core at 3.4% is not yet moving in the right direction. The disinflation that defined 2024 has stalled. When the preferred gauge stops falling and the economy is still growing above 2%, the case for cutting weakens and the case for holding, or leaning toward a hike, gets stronger.
The growth and jobs data pointed the same way
A hot inflation print alongside a weakening economy would leave the Fed with a genuine dilemma, the kind that can still argue for a cut to protect jobs. That is not the picture the June 25 data painted. The third and final estimate of first-quarter GDP was revised up to 2.1% annualized, half a point above the 1.6% second estimate, with the revision driven largely by softer imports (which subtract from measured growth). That removes the recession-risk framing that hovered over the economy earlier in the year.
The labor market told the same story. Initial claims for unemployment benefits fell to 215,000 in the week ending June 20, down from 227,000 and below the roughly 226,000 economists expected. A low and falling claims number says employers are holding on to workers, which keeps wage pressure alive and gives the Fed room to stay restrictive. Growth above trend and a tight job market are exactly the conditions under which a central bank worries more about inflation than about a slowdown.
The Fed’s June meeting already leaned this way
The repricing did not come out of nowhere. At its June 16-17 meeting, the FOMC held its benchmark range at 3.50% to 3.75% on a unanimous vote, but the accompanying Summary of Economic Projections lifted the median expectation for the policy rate at the end of 2026 to about 3.8%. That is above the current range, which means the committee’s own central forecast already implies an increase rather than a cut as the next move. Chair Kevin Warsh used his first meeting to trim the statement and drop the “easing bias” language that had signalled cuts were coming.
So the institution had already shifted its lean before this week’s data arrived. May’s PCE, GDP, and claims numbers did not create the hike case; they confirmed the path the June projections had sketched. That is why the market reaction was a repricing of probability rather than a shock. The question is no longer whether the Fed has stopped cutting. It is whether the next move is a hold that stretches through the year or an actual increase, and the data this week nudged that balance toward the increase.
What “73% odds of a September hike” really means
A market-implied probability is not a forecast from the Fed, and it is not a promise. It is the price traders are collectively putting on an outcome, and it moves with every data release between now and the meeting. Roughly 73% odds of a hike by September means the market thinks an increase is clearly more likely than not, but it also means there is still around a one-in-four chance it does not happen. Two more inflation prints and two more jobs reports land before that meeting, and any of them could shift the number sharply.
This is the part worth holding onto: one hot month is not a trend. The May data hardened a direction, but a clear cooling in the June and July readings, especially if the job market loosens, would pull the cut scenario back into view quickly. The honest framing is two-way risk. The base case has flipped from “cut next” to “hike next,” but it is a lean, not a lock. The next scheduled decision is July 29-30, with September the meeting the market is really watching.
What it means for savers, borrowers, and retirees
The throughline for households is that the one-way-down assumption of the past two years is gone. The environment is better modeled as rates staying around where they are, with a hike as the live risk and a cut as the upside surprise rather than the plan. That lands differently for three groups.
For savers, the elevated yields on high-yield savings accounts and certificates of deposit, broadly in the 4% to 5% range, have already outlasted the forecasts that had them falling through 2025. A Fed that holds or hikes makes it more likely they stick around through 2026. The planning posture shifts from “lock it in before it disappears” to treating these as a normal that may persist for a while.
For mortgage borrowers, the 30-year fixed rate stood at 6.49% in the week ending June 25, little changed and stubbornly above 6%. Mortgage pricing tracks the 10-year Treasury yield, near 4.4% in late June, more than it tracks the Fed’s overnight rate, so waiting for the Fed to deliver cheaper home loans is a weaker plan than it was a year ago. If the Fed is more likely to hike than cut, the case for holding out for a sharply lower rate is thinner.
For retirees and those approaching retirement, higher-for-longer has a genuine upside. Treasury and CD ladders at around 5%, and a 10-year Treasury near 4.4%, offer a positive return above current inflation, and annuity payouts, which price off long-term rates, remain at their most attractive in over a decade. The same inflation that is keeping the Fed cautious is also lifting the 2027 Social Security cost-of-living adjustment, even as it worsens the program’s longer-run funding math, a tension we cover in our Social Security 2027 COLA and Trust Fund piece.
Frequently asked questions
What is PCE inflation, and why does the Fed watch it instead of CPI?
PCE stands for Personal Consumption Expenditures. It is an inflation measure published by the Bureau of Economic Analysis that tracks the prices households actually pay across a broad basket of goods and services. The Fed targets 2% PCE inflation rather than the more familiar Consumer Price Index because PCE adjusts for how people change their spending and covers a wider range of costs. The core version, which excludes food and energy, is the gauge the Fed leans on most for interest-rate decisions because it filters out the most volatile prices.
Does a hot PCE print mean the Fed will definitely hike in September?
No. It raises the odds, and the market moved to price a hike as more likely than not, but it is a probability, not a decision. The Fed sees two more inflation reports and two more jobs reports before the September meeting, and a clear cooling in that data could shift the picture back toward a hold or even a cut. The base case has flipped toward a hike, but it remains two-way risk.
If the Fed hikes, will my mortgage rate go up?
Not directly. Fixed mortgage rates track the 10-year Treasury yield and the broader bond market more than the Fed’s short-term rate. A Fed hike can push yields around, but the link is indirect, which is also why a Fed cut does not automatically lower mortgage costs. The practical point is that waiting for the Fed to deliver a much cheaper mortgage is a less reliable plan now than it was when cuts looked certain.
Are high savings rates likely to last into 2027?
They are more likely to persist than the 2024-25 consensus expected. A Fed that holds or hikes keeps short-term rates elevated, which supports the competition for deposits that drives high-yield savings and CD rates. Nothing is guaranteed, but the higher-for-longer case strengthened with this week’s data.
When does the Fed next decide on rates?
The Federal Open Market Committee next meets on July 29-30, 2026, followed by a meeting in September. The September meeting is the one the market is watching most closely for a possible rate increase, because more inflation and jobs data will be in hand by then.
The Savvy Investor’s take
The tidy story of 2024 and 2025, inflation easing and the Fed cutting, is now firmly behind us. May’s core PCE at a two-year high, sitting on top of an economy that grew faster than first thought and a job market that is still tight, has done what the Fed’s June projections hinted at: it has made a 2026 rate increase the more likely next move rather than a cut. The market agrees, which is why it now prices a hike as the base case heading into September.
The useful posture for most households is to plan around rates staying broadly where they are, treat a hike as the live risk, and treat a cut as a pleasant surprise rather than the plan. Where attractive yields are on offer, in Treasuries, CDs, and savings accounts, they are worth more attention now than during the cuts-are-coming years. Mortgage decisions are better made on the maths in front of you than on a cutting cycle that may not arrive on schedule. And it is worth keeping the two-way nature of this in mind: a single soft summer would change the conversation again. The July 29-30 and September meetings are where most of this gets answered.
Related Savvy Investor reading
- From rate cuts to a rate hike: Warsh’s first FOMC and what it means for US savers: the fuller story of the new chair and the divided committee behind this week’s repricing.
- Your 2027 Social Security check could be bigger, your 2032 check smaller: how higher-for-longer inflation cuts both ways for retirees.
- I-bonds at 4.26%: the US cousin of UK Premium Bonds: an inflation-protected option for part of a cash allocation.
Key sources
- US Bureau of Economic Analysis, Personal Income and Outlays, May 2026 (PCE)
- US Bureau of Economic Analysis, Gross Domestic Product, first quarter 2026 (third estimate)
- US Department of Labor, weekly unemployment insurance claims
- Freddie Mac, Primary Mortgage Market Survey
- Federal Reserve, FOMC meeting calendar
Information, not advice. This article explains the May 2026 PCE, GDP, and jobless-claims data released on June 25, 2026, the Federal Reserve’s June projections, and the market’s repricing toward a possible 2026 rate increase. Interest rates, bond yields, and Fed expectations move daily; the figures here are point-in-time. The roughly 73% probability of a September hike is a market-implied estimate, not a Fed commitment. This is general educational information, not personal financial, tax, or investment advice. Savvy Investor Guide is not authorized to provide regulated financial advice. Consider your own circumstances and, where appropriate, consult a qualified professional before making decisions about savings, mortgages, or retirement accounts.