Investors are widely expecting the US Federal Reserve to leave interest rates unchanged at its upcoming Federal Open Market Committee (FOMC) meeting. However, market participants will be paying closer attention to the central bank’s guidance, updated economic projections, and signals from incoming Chair Kevin Warsh as they assess the direction of monetary policy for the remainder of the year.
With inflation remaining elevated, the labour market holding firm, and geopolitical developments influencing energy prices, experts believe the meeting could offer important clues on whether the Fed remains committed to a higher-for-longer stance or begins laying the groundwork for future policy easing.
According to Hamza Dweik, Head of Trading (MENA) at Saxo Bank, the meeting is likely to be defined by the Fed’s messaging rather than any change in rates.
“The upcoming Fed meeting is less about the decision itself and more about how the narrative evolves, especially as this is the first meeting under the new Chair, Kevin Warsh. That transition matters because markets are trying to understand whether the Fed is shifting back toward a more explicitly hawkish stance, particularly in an environment where inflation risks are being re-introduced through energy and geopolitics.
Going into the meeting, the macro backdrop is relatively firm. Headline inflation has moved back up to around 4.2% year on year, while the labor market remains resilient with unemployment holding near 4.3% and job creation still steady. At the same time, US equities have been relatively stable and trading close to recent highs, supported by strong earnings and improving sentiment following the US-Iran breakthrough, which has eased oil prices and reduced some of the inflation pressure tied to energy markets. This interplay between geopolitics and inflation is now central to the Fed’s decision-making.
The base case remains unchanged rates, with markets overwhelmingly expecting the Fed to hold within the current 3.50% to 3.75% range. In this scenario, the focus shifts to tone rather than action. A hawkish hold is the most likely outcome, where the Fed acknowledges that inflation remains sticky and may have been temporarily pushed higher by energy shocks earlier in the year. The recent easing in oil prices following the US-Iran de-escalation helps the outlook, but it does not yet give the Fed enough confidence to pivot. This would reinforce the higher-for-longer narrative, support the US dollar, and push bond yields higher, while potentially creating some short-term pressure on equities.
A more balanced outcome would be a neutral or slightly dovish hold. In that case, the Fed keeps rates unchanged but signals that if the improvement in energy markets continues and feeds through into lower inflation prints, there could be room to consider easing later in the year. That would be supportive for global risk appetite, with equities benefiting from a softer rates outlook and emerging markets seeing improved capital flows as the dollar weakens. A rate cut at this meeting remains highly unlikely given current inflation dynamics, but if it were to happen, it would suggest the Fed is prioritizing growth risks over inflation. While that would initially boost markets, it could introduce volatility as investors begin to question whether the US economy is slowing more sharply than expected.
On the other side, a rate hike is not the central expectation, but it cannot be fully ruled out if the Fed wants to reinforce its inflation credibility early in the new Chair’s tenure. That would be the most disruptive outcome, pushing yields higher, strengthening the dollar further, and weighing on equities globally.
In practical terms, markets are not expecting a surprise on rates tomorrow. The real story is the forward guidance, especially in the context of improving geopolitical conditions. The US-Iran deal and the resulting easing in oil prices provide some relief on inflation, but the Fed is unlikely to react to early signals alone. This meeting will set the tone for the second half of the year, shaping whether the next move is still a cut, or increasingly a hike.”
Similarly, Aliasgar Tambawala, Co-CIO at Klay Group, expects policymakers to keep rates unchanged while focusing attention on the Federal Reserve’s updated projections and Chair Warsh’s communication style.
“The June FOMC meeting will mark the transition to Kevin Warsh’s leadership of the Federal Reserve, with his first meeting and press conference as Chair. While we do not expect any change in policy rates, we believe the meeting could provide important insights into the future policy direction of the Fed and Warsh’s approach to communication.
We expect the updated dot plot to adopt a more hawkish tone, with the median FOMC participant projecting no rate cuts in 2026. At the same time, we anticipate a wider dispersion of policy views within the Committee, with some policymakers forecasting rate hikes while others continue to anticipate limited easing. In our view, this would highlight growing uncertainty around the inflation and growth outlook.
We also believe policymakers may revise higher their estimate of the longer-run neutral rate, reflecting the view that current policy is only mildly restrictive despite unchanged nominal rates.
A key focus will be Chair Warsh’s first press conference. We expect him to acknowledge near-term inflation risks while highlighting the productivity-enhancing and potentially disinflationary effects of AI-driven investment over the medium term.
On balance sheet policy, we do not expect any immediate changes. However, we believe Warsh will reiterate his preference for a smaller Federal Reserve balance sheet over time, with any reduction proceeding gradually and deliberately.
More broadly, we expect Warsh to place significantly less emphasis on forward guidance, dot plots and detailed policy signalling than previous Fed Chairs. This could result in greater market uncertainty and higher rate volatility. We would not rule out the possibility that he avoids providing detailed guidance on the future rate path, and there is even a possibility that he chooses not to submit his own policy rate projections to the SEP, consistent with his longstanding scepticism towards forecasting and forward guidance as policy tools.”
While both experts expect rates to remain on hold, they agree that the meeting’s significance lies in the signals policymakers provide about the path ahead. With inflation concerns lingering, geopolitical risks evolving, and a new Fed Chair at the helm, markets will be looking beyond the rate decision itself for clues on the trajectory of US monetary policy in the second half of the year.
