Investing.com -- Wells Fargo released its June 2026 economic outlook, projecting the Federal Reserve will maintain current interest rates as inflation remains elevated and the labor market stabilizes.

The bank noted that headline and core PCE inflation stand at 3.8% and 3.3% year over year respectively, both above the Fed's target. Wells Fargo said the central bank appears to be shifting toward a more neutral policy stance under new Chair Warsh.

The firm said the case for rate hikes does not appear strong. The unemployment rate sits near estimates of full employment, wage growth remains at around 3.5%, and job postings continue to move sideways. Wells Fargo added that much of the excess inflation stems from supply side factors including tariffs and energy shocks that cannot be easily addressed through tighter monetary policy.

Wells Fargo said rate hikes would require proof that the labor market is overheating or a worse inflation outlook. The unemployment rate has stayed between 4.2% and 4.5% every month but one since February 2025. A sustained break below that range would signal labor market tightening, the bank said.

The firm said it will wait to hear from Chair Warsh before revising its fed funds forecast. The cuts currently in its official forecast are a placeholder, Wells Fargo said.

On consumer spending, Wells Fargo said momentum is fading after price adjustment as real income growth weakens. Real disposable income fell 0.5% in April, while real spending rose just 0.1%. The saving rate dropped to 2.6%. Wells Fargo expects real consumer spending at roughly 2.0% in the second quarter and throughout the year.

Business investment remains led by high-tech spending, with software and information processing equipment surging in the first quarter. Wells Fargo expects another double-digit gain in equipment investment in the second quarter.

Housing affordability remains a constraint for residential investment. Wells Fargo said both new and existing home sales declined in the first three months of the year, largely due to elevated mortgage rates.

The bank raised its nonfarm payroll forecast and now expects job growth to average a 95,000 monthly pace throughout 2026. Wells Fargo said the unemployment rate should remain steady at 4.3% for the rest of the year.

Wells Fargo increased its core PCE forecast to 3.2% in the fourth quarter, up from 3.0% previously. The bank said the disinflationary tailwind from moderating shelter costs appears to be nearing its end.