Fed policy uncertainty in 2026

What happened: Inflation has surged, with May's Consumer Price Index rising 4.2% annually, well above the Fed's 2% target. This has led to uncertainty about the Fed's policy direction in 2026. Bank of America warns of a 1994-style market shock, while Goldman Sachs has removed rate cut forecasts. Warren Buffett has not started buying stocks due to this uncertainty, and investors are watching for the Fed's next move.

Market impact: Volatility has returned, with investors concerned about AI fears, geopolitical tension, and rate uncertainty. Retirees could be affected by potential rate hikes, with those relying on borrowing particularly vulnerable. SoFi stock, which assumed Fed rate cuts, could face headwinds if rates rise. The Virtus InfraCap U.S. Preferred Stock ETF (PFFA) is sensitive to the Fed's cutting pace, making it a key variable for its performance.

What to watch next: The upcoming Fed meeting on June 15-16 will provide clarity on the Fed's policy direction. Additionally, the June inflation report on July 13 will offer insight into the persistence of inflationary pressures. Lastly, investors should monitor the June jobs report on July 8, as strong employment data could further fuel rate hike expectations.