Federal Reserve Chairman Jerome Powell will speak at the Fed’s 7th Anniversary International Financial Conference held on June 2, 2025 in Washington, DC.
Chip somodevilla | Getty Images
Federal Reserve officials will be expressing their perspectives this week on future paths for interest rates, along with the impact of tariffs and Middle Eastern turmoil on the economy.
While there seems to be a unlikely move on interest rates, the policy meeting, which closes Wednesday, will still feature important signals that allow them to move around the market.
Among the biggest things to look at is whether members of the federal open market committee are sticking to previous forecasts for two interest rate cuts this year, the inflation outbreak and the response from Chairman Jerome Powell, and whether they stick to what has become a collaborative White House campaign to facilitate monetary policy.
“The Fed’s main message at the June meeting is to stay comfortably in waiting mode,” Bank of America economist Aditya Bhave said in a memo. Bofa believes the Fed will not cut at all this year, but reveals one possible reduction. “Investors should focus on Powell’s soft labor data, recent benign inflation prints, and the risks of sustained tariff-driven inflation.”
The “dot plot” grid of expectations for the rates of individual members of the committee will become the forefront and center for investors.
In its last update in March, the committee showed that it amounted to a percentage point reduction for the two quarters of this year. This is in line with current market pricing. However, it is a close call, with only two participants who changed their approach pushing the median prediction down to one cut.
The conference opposes a complex geopolitical background that has so far minimal impact on inflation from President Donald Trump’s tariffs, but is unknown for the future. At the same time, Trump and other administration officials have stepped up the Fed’s urging and increased lower fees.
In addition, the Israeli-Iran conflict threatens to destabilize the global energy image and provides yet another variable to navigate policy.
“Chairman Powell hopes to repeat his message from the press conference in May,” Bhave said. “Policies are in a good place and there’s no rush for the Fed to act.”
However, the landscape can change rapidly.
Various economic signals
The unemployment rate remains low at 4.2%, but May Non -Farm’s salary report showed continued softening in the labor market. The latest inflation data also shows that tariffs have little impact on prices at least on a macro scale, adding at least another incentive to think about mitigation.
“We’re in a world that doesn’t shock,” former Dallas president, President Robert Kaplan, said in an interview with CNBC last week. “If these future tariffs are flowing and flowing, I think the Fed is on the forehead of trying to cut interest rates.”
As things head towards the meeting, the market is priced at the next cut coming in September. The committee added two more quarterpoint moves by the end of the year, and has been pending ever since.
In the current climate, “there are some reduction in trade tensions, low inflation rates, and hard data shows limited signs of softening,” writes David Merrick, an economist at Goldman Sachs.
Goldman sees the Fed sticking to a two-cut forecast, but the company’s economists hope to see just one in the end.
“With aside tariffs, inflation news is actually quite soft, so I’m sure it’s still going well for the final interest rate cuts. Previous cuts are possible, but the impact of peak summer tariffs on monthly inflation printing is likely too fresh for FOMC to cut before December,” Mericle said.
The authorities will also update forecasts for employment, inflation and gross domestic product growth.
Goldman believes FOMC raises inflation expectations to 3% for all of 2024, 0.2 points higher than in March. The company also believes its GDP growth is slightly lower, from 1.7% to 1.5% and the unemployment rate is high at 4.5%.
Authorities then use the summer to view the data and then determine what to do later in the year, said Krishna Guha, head of global policy and central bank strategy at Evercore ISI.
“We believe the FOMC will remain on standby at its June meeting on Wednesday, which hopes to learn more about the evolving outlook over the coming months, continuing to point to September as the next decision point for the rate,” Guha said in a memo.
