By François Rimeu, Senior Strategist, Crédit Mutuel Asset Management

The Federal Reserve (Fed) is expected to leave interest rates unchanged, against a backdrop of rising PCE (Personal Consumption Expenditures) inflation, the Fed’s preferred inflation gauge, which accelerated to 3.8% year-over-year in April, while the labor market continues to post solid job gains (more than 180,000 jobs per month on average over the past three months ending May), making it difficult to justify any rate cuts.

Its new Chair, Kevin Warsh, may still lean dovish over the medium term, supported by a more forward-looking view of inflation: disinflation driven by productivity gains and tariff-related effects expected to fade over time.

Our expectations

- The Federal Open Market Committee (FOMC) will keep the target range for the federal funds rate unchanged at 3.50%–3.75%.
- The policy statement is likely to evolve, with the accommodative bias being dropped in favor of a more neutral tone, leaving the next move, whether a rate hike or cut, entirely data dependent.
- The Summary of Economic Projections (SEP) is expected to confirm a return to the 2% inflation target only by 2028, justifying an extended pause this year. However, the dot plot may reveal a more divided path, with some members considering further rate hikes rather than a prolonged hold.
- During his first press conference, Kevin Warsh will likely face questions on several key issues: the frequency of press conferences, the use of forward guidance and the dot plot, preferred inflation measures, the role of the balance sheet in monetary policy implementation and the central bank’s independence.

In conclusion

Unsurprisingly, the Fed is expected to leave rates unchanged. Kevin Warsh is likely to appear comfortable maintaining a wait-and-see approach, with any potential rate cuts pushed further into the future.