Fed Expected to Hold Rates Steady, But Forecasts Could Shake Markets

As the Federal Reserve prepares to wrap up its June policy meeting this week, economists and investors alike are bracing not for a rate change—but for the guidance that could shape markets for months to come.

While it's widely expected that interest rates will remain unchanged, all eyes are on the Fed’s revised outlook, including how officials interpret recent labor market weakness, tariff pressures, and global geopolitical risks.

No Immediate Cuts, But the Forecast Matters

According to Bank of America economist Aditya Bhave, the Fed will likely stick to its wait-and-see approach, maintaining a cautious tone amid mixed economic signals.

“The Fed’s main message will be that it remains comfortably in wait-and-see mode,” Bhave wrote. “Investors should focus on Powell’s take on the softening labor data, benign inflation prints, and tariff-driven risks.”

While no action is expected in June, markets are pricing in a potential rate cut in September, with a slim chance of another by year-end. Whether the Fed maintains its earlier projection of two rate cuts in 2025—communicated in the March “dot plot”—will be crucial. That forecast could easily shift: just two committee members changing their outlook would bring the median expectation down to a single cut.

Powell Faces Pressure from All Sides

Complicating matters further is a backdrop of growing political pressure. President Donald Trump and White House officials have been vocal in urging the Fed to lower rates, citing sluggish inflation and the economic burden of tariffs. Meanwhile, ongoing tensions in the Middle East, particularly between Israel and Iran, are adding new uncertainty to the global energy outlook.

“Policy is in a good place and there is no hurry for the Fed to act,” Bhave said, echoing expectations that Chair Jerome Powell will stick to a cautious script during Wednesday’s post-meeting press conference.

Labor Market Softening, Inflation Easing

Although the unemployment rate remains low at 4.2%, recent jobs data shows signs of a gradual cooling. May’s payroll report revealed continued slowing in hiring, while inflation data has remained subdued, even with new tariffs taking effect.

“We’re in a disinflating world,” said former Dallas Fed President Robert Kaplan, adding that “if it weren’t for the prospective tariffs, the Fed would likely be more aggressive in cutting rates.”

Goldman Sachs economists agree the Fed may stick with its two-cut forecast for now, but ultimately expect just one rate cut, likely in December, once the inflationary effects of tariffs have been fully processed.

Revised Economic Outlook

This week’s meeting will also bring updated forecasts for employment, GDP, and inflation.

• Goldman Sachs expects the Fed to raise its inflation projection to 3% for 2024, up from 2.8% in March.

• GDP growth could be revised down to 1.5%, from the previous 1.7%.

• Unemployment is expected to edge up to 4.5%.

“We think the FOMC will maintain its wait-and-see posture... and continue to point to September as the next decision point on rates,” said Krishna Guha, head of global policy at Evercore ISI.

Looking Ahead: Eyes on September

With the Fed expected to hold steady in June, attention now shifts to the second half of the year. As inflation, employment, and geopolitical risks continue to evolve, markets will be watching closely to see whether the Fed sticks to its projected path—or pivots based on new data.

For now, Powell’s messaging and the updated “dot plot” will serve as the clearest indicators of what’s next for U.S. monetary policy.