The Fed is expected to maintain current interest rates while providing a market-influencing outlook. Here’s what you can anticipate.
Federal Reserve Chair Jerome Powell delivers remarks during the Division of International Finance 7th Anniversary Conference at the Fed on June 02, 2025, in Washington, DC. Chip Somodevilla | Getty Images
Federal Reserve officials will share their outlook this week regarding the future path of interest rates and the impacts of tariffs and Middle East tensions on the economy. While immediate changes to interest rates seem unlikely, the upcoming policy meeting, concluding Wednesday, will provide significant signals that could influence market movements.
Key points of interest include whether Federal Open Market Committee members will maintain their previous forecast of two rate cuts this year, their views on inflation trends, and any reactions from Chair Jerome Powell regarding the ongoing push from the White House for easier monetary policy.
“The Fed’s main message at the June meeting will be that it remains comfortably in wait-and-see mode,” said Bank of America economist Aditya Bhave in a note. BofA anticipates that the Fed will refrain from cutting rates this year, while keeping the possibility for one reduction open. “Investors should focus on Powell’s insights into the softening labor data, recent benign inflation figures, and the risks of ongoing tariff-driven inflation.”
The committee’s “dot plot,” which reflects individual members’ rate expectations, will be a central focus for investors. In the last update in March, the committee suggested the potential for two quarter-percentage-point reductions this year, aligning with current market expectations. A shift in participation could easily adjust the median forecast to one cut.
This meeting occurs against a complex geopolitical backdrop, where the effects of President Trump’s tariffs on inflation have been minimal so far, yet remain uncertain for the future. Additionally, Trump and other administration officials have increased their calls for the Fed to lower rates.
The Israel-Iran conflict further complicates the global energy landscape, presenting another variable for policy navigation. “We expect Chair Powell to reiterate his message from the May press conference,” Bhave noted. “Policy is in a good place, and there is no rush for the Fed to act.” However, circumstances could change rapidly.
Varying Economic Signals
Although the unemployment rate is low at 4.2%, the May nonfarm payrolls report showcased a continued, albeit gradual, softening in the labor market. Recent inflation data also indicated that tariffs have had minimal effects on prices on a macro level, reinforcing the Fed’s considerations for potential easing.
“We’re in a disinflating world,” stated former Dallas Fed President Robert Kaplan in a recent interview. “If it weren’t for the anticipated tariffs impacting inflation, I believe the Fed would be inclined to cut rates sooner.”
As the meeting approaches, markets are anticipating the next cut to occur in September, coinciding with the first anniversary of a previously aggressive half-percentage-point reduction by the FOMC in light of labor market concerns. The committee also implemented two additional quarter-point moves by the year’s end and has since been on hold.
“Trade tensions have eased somewhat, inflation has remained low, and hard data have only shown limited signs of softening,” said Goldman Sachs economist David Mericle. Goldman predicts the Fed will uphold its two-cut forecast, although its economists expect to see only one cut ultimately.
“We remain confident in the prospects for eventual rate cuts since, excluding tariffs, the inflation reports have been relatively soft. While an earlier cut is feasible, the peak summer tariff effects on inflation metrics will likely prevent the FOMC from acting before December,” Mericle concluded.
Officials are also set to update their projections for employment, inflation, and GDP growth. Goldman anticipates an uptick in inflation expectations to 3% for all of 2024, slightly above the March estimate. They also foresee a minor decrease in GDP growth to 1.5% from 1.7%, alongside an increase in the unemployment rate to 4.5%.
Officials will use the summer months to monitor data and make further assessments regarding their course of action later this year, according to Krishna Guha, head of global policy and central bank strategy at Evercore ISI. “We believe the FOMC will maintain its wait-and-see stance at the June meeting, emphasizing that it still anticipates gathering more information about the evolving outlook over the coming months, while pointing to September as the next key decision point on rates,” Guha added.
