Happy Fed Day! Today we’ll preview the meeting and predict the FOMC’s decision…

SETTING THE SCENE

This marks the second FOMC meeting since President Trump announced sweeping tariffs that significantly exceeded market expectations. Since the FOMC’s last meeting (early May), consumer sentiment has rebounded from its lowest levels since the COVID-19 pandemic, suggesting improved confidence despite greater economic uncertainty. Core inflation data also came in slightly more favorable than expected, easing some pressure on the Fed to maintain a hawkish stance. However, weak retail sales and industrial output, along with heightened geopolitical tensions (namely the Israel-Iran conflict), have reinforced expectations that the Fed will hold rates steady.

KEY CONSIDERATIONS

The FOMC remains in a challenging spot. 2025 was initially projected to be a year of continued rate cuts following several reductions in 2024; however, the unexpected scope of President Trump’s tariff announcement prompted a shift toward a more cautious, “wait and see” approach. While the tariffs were expected to drive rapid price increases, inflation data so far has not reflected the severity of those forecasts. At the same time, consumer sentiment has improved, suggesting households may be more resilient than previously assumed. While a major monetary policy pivot is not expected at this meeting, markets will be closely watching the Fed’s quarterly Summary of Economic Projections for insight into how FOMC members expect interest rates to play out over the remainder of the year.

PREDICTION: FOMC HOLDS RATES AND CONTINUES PACE OF QUANTITATIVE TIGHTENING

I expect the FOMC to hold rates and maintain the current pace of quantitative tightening in its 6/18 announcement, while signaling a cautious approach to monetary policy for the remainder of 2025. The Committee remains firmly in “wait and see” mode - balancing the absence of hard inflation data against still-elevated inflation risks. In addition to holding policy steady, I expect FOMC participants to signal one rate cut (against the market’s forecast of two) for the remainder of 2025 in the updated Dot Plot.

The FOMC’s decision will be released at 2:00pm ET followed by the Chair’s press conference at 2:30pm.

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