FOMC Outlook: The Federal Reserve Will Hold Steady, Multiple Factors Influence Interest Rate Policy Direction
On June 19 (Thursday) at midnight, the Federal Open Market Committee (FOMC) will announce its interest rate decision, and the market generally expects the Federal Reserve to maintain the federal funds rate in the range of 4.25%-4.5%.
This expectation is based on the complexity of the current U.S. economic data and policy environment. Although there are signs of cooling in the job market, it has not significantly deteriorated; inflationary pressures have eased somewhat but remain above target levels. At the same time, geopolitical tensions and uncertainties in tariff policies add more considerations to the Federal Reserve's decision-making.
Although the market generally expects the Federal Reserve to hold steady, the future policy path is still influenced by multiple factors;
First, the tense situation in the Middle East has caused fluctuations in oil prices, which, although there has been a brief decline, may still push up inflation. Second, the tariff policies of the Trump administration have increased economic uncertainty, which has a lagging impact on inflation and employment. In addition, the U.S. economy faces the risk of “stagflation,” with slowing consumer spending, weak manufacturing output, and declining retail sales potentially having impacts.
According to the dot plot from the March FOMC meeting, most members expect two 25 basis point rate cuts before the end of 2025, but the latest forecasts may have been adjusted. The Federal Reserve is expected to lower its economic growth forecast for 2025 while raising its inflation and unemployment rate expectations. The market generally believes that the Federal Reserve may cut rates by 25 basis points in September and December, but if economic data performs better than expected, the rate cut expectations may be retracted.
The Trump administration has recently pressured the Federal Reserve to cut rates, claiming that high rates are harming the U.S. economy. However, Federal Reserve Chairman Powell has repeatedly reaffirmed the independence of the policy, emphasizing that decisions will be based on economic data rather than political pressure.
San Francisco Fed President Daly believes that the current policy is “good,” and inflation will continue to decrease, but it needs to wait. Meanwhile, Dallas Fed President Logan feels that the effects of Trump's policies will take time to manifest, and rates may need to be maintained for longer.
In summary, the Federal Reserve is likely to hold steady in June, but multiple complex factors will influence its future decisions, especially the uncertainties in geopolitical and tariff policies. Investors need to closely monitor Powell's press conference statements to gauge the rate cut path and economic outlook.