Will the Fed Cut Rates This Year?

• The Fed left rates unchanged for a second straight meeting, with future rate cut projections for 2026 shrinking from two to potentially zero.
• Stagflation is defined as high inflation and weak GDP growth, often caused by negative supply shocks, which is a mild risk now but not a 1970s-style crisis.
• Supply shocks create a bind for the Fed, pushing its dual mandate (jobs and inflation) in opposite directions, leading to a likely steady rate policy for the year.

The Federal Reserve is currently adopting a wait-and-see approach, keeping interest rates unchanged for a second consecutive meeting amidst economic shocks from geopolitical conflicts. Market expectations for rate cuts in 2026 have diminished, and while there's a risk of mild stagflation (slowing growth, rising inflation), it's not comparable to the 1970s. The Fed faces a dilemma with supply shocks pushing its dual mandate in opposite directions, but is expected to maintain steady rates this year.