Fed holds rates but raises 2026 rate forecast to 3.8%, lifts PCE outlook

The Federal Reserve left its policy rate unchanged on Wednesday while updating its Summary of Economic Projections (dot plot). Policymakers now project the federal funds rate at 3.8% by end-2026, up from 3.4% in March, and lifted their PCE inflation projections, signalling a more persistent inflation outlook and a hawkish shift in policy expectations.

Why the Fed's revised 2026 outlook matters for Forex traders

The change in the dot plot and higher PCE forecasts alter the market's baseline for interest-rate expectations. Currency markets price on expected differences in policy paths across economies, so a stronger late-2026 federal funds projection may affect how traders view the relative appeal of dollar assets. Futures and other interest-rate instruments may reflect the revised outlook as participants reassess the timing and extent of future rate moves. At the same time, a lifted PCE projection signals that inflation may remain more persistent than previously expected, which feeds into that reassessment.

FX and cross-asset implications to monitor

• US Dollar and DXY: Markets may remain sensitive to the Fed's hawkish tilt; revisions in rate expectations often influence the dollar's relative strength as yields and policy differentials are repriced.
• Major pairs: EUR/USD, GBP/USD and USD/JPY may be influenced by any shifts in dollar risk premia as traders reassess monetary policy trajectories between the United States and other economies.
• US Treasury yields and gold: The updated Fed outlook may be associated with firmer Treasury yields and may affect gold's appeal as an inflation hedge or carry alternative, depending on prevailing rate expectations.

Markets will likely focus on how quickly futures pricing adjusts to the new dot plot and PCE projections. Traders will also watch upcoming US economic releases and communications from the FOMC for further guidance on the persistence of inflation and the Fed's path for policy, as these signals will help determine how currency and interest-rate markets digest the revised outlook.