The Federal Reserve left interest rates unchanged at its June meeting but sharply raised the odds of at least one increase before the end of the year, a pivot that rattled financial markets and complicated the economic outlook heading into the second half of 2026.

The Federal Open Market Committee voted unanimously to keep its benchmark overnight borrowing rate in a target range of 3.5 percent to 3.75 percent, where it has sat since the spring. Yet in new projections released Wednesday, nine of the committee's 19 participants penciled in at least one rate hike by December, pushing the median year-end expectation to between 3.6 percent and 4.1 percent.

The shift sent an immediate jolt through markets. Treasury yields climbed and stock indexes slid as investors recalibrated portfolios for a longer campaign of monetary restriction than previously expected. The S&P 500 fell more than 1 percent following the announcement, and the Nasdaq Composite dropped 1.3 percent in choppy trading.

Fed Chair Jerome Powell, who made his formal debut at a news conference Wednesday, attributed the revised outlook to persistent inflation pressures and a surprisingly resilient labor market. He declined to prejudge the timing or size of any lift-off but said the committee would not wait until inflation had fully returned to its 2 percent target before acting.

"The Committee's assessment is that the risks to achieving our goals have moved toward the upside," Powell told reporters, repeating language that in past cycles has signaled a readiness to tighten policy.

Economists said the new projections suggest the Fed is now treating its prior rate cuts as temporary accommodations rather than the start of a new easing cycle. That reading left bond yields near their highest levels of the year and widened borrowing costs for mortgages, auto loans, and business credit just as summer spending season begins.

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