The Federal Reserve is widely expected to keep interest rates unchanged on Wednesday, as policymakers weigh softening inflation and steady employment against a backdrop of escalating geopolitical tensions and uncertain US trade and immigration policies.
Despite cooling inflation and mixed economic data—including weak May retail sales and declining industrial production—markets are betting that the Fed will maintain its federal funds target range at 4.25%-4.50%.
Investors are now focused on the central bank’s updated Summary of Economic Projections (SEP) and the closely watched “dot plot” charting individual rate forecasts.
“At best, the dot plot will point to two rate cuts in the final four months of the year. At worst, it may show weaker growth projections and higher inflation forecasts — and a Fed urging patience,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “The base case remains two rate cuts this year, with the first likely not before September.”
According to Ozkardeskaya, the probability of a rate cut at the September meeting stands at about 63%, though that outlook could shift depending on how the Fed updates its growth and inflation forecasts.
"Rising geopolitical and trade uncertainties mean the Fed’s growth and inflation forecasts may lack precision,” she added. “Any indication from the dot plot should be taken with a grain of salt.”
Uncertainty surrounding President Donald Trump’s evolving trade and immigration policies, along with intensifying conflict in the Middle East, has made forecasting more difficult for both policymakers and markets.
Markets are currently pricing in two rate cuts by year-end, but analysts caution that further Fed action will remain highly data-dependent.
U.S. Treasury yields were steady ahead of the decision, with the benchmark 10-year note hovering near 4.4%.