Federal Reserve Chairman Jerome Powell.Despite the low likelihood of interest rate adjustments, the Federal Reserve meeting ending on Wednesday will still release important signals that may affect the market. Key points to watch include the future outlook for interest rates, officials' views on inflation trends, and the political pressure faced by Chairman Jerome Powell. This meeting takes place against a backdrop of a complex geopolitical situation: the impact of President Donald Trump's tariffs on inflation is currently relatively mild, but its future direction remains unclear.
Federal Reserve officials this week will outline their outlook on the future path of interest rates and the impact of tariffs and unrest in the Middle East on the economy.
Although the likelihood of interest rate adjustments in the short term seems low, the policy meeting ending on Wednesday will still release important signals that may affect the market.
Key points of interest include whether members of the Federal Open Market Committee (FOMC) will stick to their previous prediction of two rate cuts this year, how they view inflation trends, and how Chairman Jerome Powell will respond to the continued pressure from the White House to push for a loose monetary policy.
Bank of America economist Aditya Bhave stated in a report: "The main message from the Fed at the June meeting will be that it remains calmly in a wait-and-see mode." Bank of America believes the Fed will not cut rates this year but will retain the possibility of one rate cut. "Investors should pay attention to Powell's views on the softening labor data, recent moderate inflation data, and the ongoing risk of tariffs pushing inflation higher."
The personal interest rate forecasts 'dot plot' of committee members will be the focus for investors.
In the latest update in March, the committee suggested that there might be two rate cuts of 25 basis points this year, which is consistent with current market pricing. However, this prediction carries uncertainty; if just two participants change their stance, the median forecast could drop to one rate cut.
The context of this meeting is the complex geopolitical situation: President Donald Trump's tariffs currently have a minimal impact on inflation, but the future direction remains unclear. Meanwhile, Trump and other government officials have intensified pressure on the Federal Reserve to cut rates.
In addition, the conflict between Israel and Iran could disrupt the global energy landscape, adding another variable for policy-making.
Buffett stated, "We expect Chairman Powell to reiterate his view from the May press conference that policies are in good shape and the Federal Reserve doesn't need to rush into action."
However, the situation can change rapidly.
Uneven economic signals
Although the unemployment rate remains low at 4.2%, the May non-farm payroll report shows that the labor market continues to soften (albeit gradually). The latest inflation data also suggests that, at least at the macro level, tariffs have a minimal impact on prices, which adds another impetus for the Federal Reserve to consider easing policies.
"We are in a world of declining inflation," former Dallas Federal Reserve President Robert Kaplan said last week in an interview with CNBC. "If it weren't for these anticipated tariffs that are set to take effect and are already in effect, I believe the Federal Reserve would actively consider cutting rates."
Based on the situation before the meeting, the market expects the next interest rate cut to be in September, marking the one-year anniversary of the FOMC's unexpectedly aggressive 50 basis point cut due to concerns about the labor market. By the end of last year, the committee had made two additional 25 basis point cuts and has remained unchanged since.
Goldman Sachs economist David Mericle wrote that in the current environment, "trade tensions have eased, inflation is low, and hard data only shows limited signs of softening."
Goldman Sachs believes the Federal Reserve will stick to its prediction of two rate cuts, but the firm's economists expect there will only be one rate cut ultimately.
Mericle stated, "We are confident that a rate cut will eventually occur, as inflation data is actually quite weak aside from tariffs. While an early rate cut is possible, the peak impact of tariffs in monthly inflation data may be too recent, making it unlikely that the FOMC will cut rates before December."
Officials will also update their forecasts for employment, inflation, and Gross Domestic Product (GDP) growth.
Goldman Sachs expects the FOMC to raise its inflation forecast for the entire year of 2024 to 3%, 0.2 percentage points higher than in March. The firm also expects GDP growth to slightly decline from 1.7% to 1.5%, with the unemployment rate edging up to 4.5%.
Evercore ISI's Global Policy and Central Bank Strategy Head Krishnan Guhar said that officials will use summer observation data to determine actions later this year.
Guhar stated in a report, "We believe the FOMC will maintain a wait-and-see posture at its June meeting on Wednesday, emphasizing that more understanding of the evolving outlook is needed in the coming months and will continue to view September as the next rate decision point."
