Greg Daco, chief economist at EY-Parthenon, said the Federal Reserve will keep interest rates on hold for the rest of the year.
This projection suggests a shift in monetary strategy as the central bank navigates persistent price pressures without risking a deeper economic slowdown. If rates remain steady, it could provide stability for borrowing costs across the U.S. economy.
Speaking on Bloomberg Surveillance and CNBC’s The Exchange, Daco said that current inflation pressures are largely driven by supply shocks. He said that because of these specific drivers, further interest rate hikes would not effectively curb inflation. Consequently, he believes the Fed is likely to stay put [1], [3].
Market analysts are closely watching these trends as the central bank determines its path for 2026 [3]. While the specific timing of the hold is a point of discussion among financial outlets, the consensus from Daco is that the era of aggressive hiking has paused for the current calendar year [2].
Internal projections within the Federal Reserve also show a divide in strategy. Nine of 19 policymakers have forecasted a hold [4]. This split indicates that while a significant portion of the board favors stability, there is no total consensus on the best way to manage the current inflationary environment.
Daco's assessment highlights the difficulty of using traditional monetary tools to fight inflation when the root cause is a disruption in the supply chain, rather than excessive consumer demand. By maintaining current rates, the Fed avoids tightening the economy further while waiting for supply-side pressures to ease naturally.
“The Federal Reserve will keep interest rates on hold for the rest of the year”
The projection that the Federal Reserve will maintain current rates reflects a recognition that monetary policy is a blunt instrument. When inflation is caused by supply shocks—such as geopolitical instability or logistics failures—raising interest rates cannot 'fix' the shortage of goods. By holding rates steady, the Fed attempts to balance the need for price stability without triggering a recession through over-tightening.
