U.S. Economic Outlook: June 2026

Research evidence excerpt

U.S. Economic Outlook: June 2026

OMC on hold for an extended period. Economist | Wells Fargo Economics

Jackie.Benson@wellsfargo.com | 704-410-4468

• What would it take to get hikes? A hotter labor market and/or a worse inflation Shannon Grein

outlook. One of the most frequent questions we have fielded in recent weeks has Economist | Wells Fargo Economics

been what would it take to get the Fed into a tightening cycle. We think they would shannon.grein@wellsfargo.com | 704-410-0369

need to see proof that the labor market is starting to overheat, not just that supply Nicole Cervi

and demand have reached a healthy balance after last year's mini labor market swoon. Economist | Wells Fargo Economics

A numeric example of what this might look like: the unemployment rate has been Nicole.Cervi@wellsfargo.com | 704-410-3059

between 4.2% and 4.5% every month but one since February 2025. A sustained break

below that range would be a clear sign of labor market tightening. Higher inflation also

could push the FOMC toward hikes, especially if the inflation were broadly based or

started to trigger a de-anchoring in inflation expectations. But, our current inflation

forecast (3.2% Q4/Q4 on the core PCE index for 2026) is probably not hot enough to

get them there alone.

• We will wait to hear from Chair Warsh before revising our fed funds forecast. At

this point the cuts we have in our official forecast this year are simply a placeholder.

We want to hear what Warsh has to say before officially yanking them. But as we have

been flagging, we think the right move for the Fed is to sit on the sidelines. If a very

dovish Warsh shows up, that may breathe some life into the utterly deflated prospects

for a cut. Unfortunately for Warsh (assuming he actually does have dovish leanings),