PIMCO maintained its forecast that the Federal Reserve will keep interest rates frozen throughout 2026, with economist Tiffany Wilding stating US inflation will slow in the second half. Wilding cited differences from the 2022 inflation environment, including current labor market conditions not being an inflation source, absence of multi-trillion-dollar fiscal transfers to the private sector, and significantly higher real interest rates. The asset manager's outlook contrasts with recent hawkish signals from Fed Governor Christopher Waller, who stated on July 13 that the FOMC may need to tighten policy in the near term if core inflation delivers another hot reading this week.
Wilding wrote in a July 15 report that the current inflation environment "is not 2022 for several reasons," adding that PIMCO's baseline view "still sees the Fed maintaining a hold throughout 2026 amid gradual easing of price pressures." The economist characterized 2022 inflation as driven by exceptionally large fiscal stimulus responding to pandemic damage, a historically tight labor market, and deeply negative real interest rates—conditions absent today.
Fed Governor Waller Sets 0.3% Monthly Core PCE as Tightening Threshold
Waller stated in his July 13 speech that "if we get another hot reading in core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term." Wilding interpreted this remark as indicating the Fed now places greater emphasis on responding to inflation regardless of underlying drivers, particularly if price pressures surprise sharply to the upside or prove more persistent than expected.
The PIMCO economist assessed that a 0.3% monthly increase in the core Personal Consumption Expenditures price index would qualify as the "hot" reading Waller referenced. The May core PCE rose 0.3% month-over-month according to the source data cited in the article.
Wall Street Estimates June Core PCE Rose 0.2% Month-Over-Month
Wall Street economists estimate the June core PCE price index increased approximately 0.2% from the prior month, based on recently released Consumer Price Index and Producer Price Index data for June. The Commerce Department will release June PCE figures on July 30.
FAQ
What is PIMCO's forecast for Federal Reserve interest rates in 2026?
PIMCO forecasts the Federal Reserve will maintain a rate freeze throughout 2026, with economist Tiffany Wilding citing expected inflation slowdown in the second half and structural differences from the 2022 inflation environment including current labor market conditions, absence of large-scale fiscal transfers, and higher real interest rates.
What monthly core PCE increase did Fed Governor Waller identify as requiring policy tightening?
Fed Governor Christopher Waller stated on July 13 that another "hot" core inflation reading this week would require the FOMC to consider tightening monetary policy in the near term. PIMCO economist Tiffany Wilding interpreted a 0.3% monthly core PCE increase as meeting Waller's "hot" threshold, with Wall Street economists estimating June core PCE rose approximately 0.2% month-over-month based on CPI and PPI data.
