US Fed rate cut: One of the biggest market-moving events that’s lined up this week is the US Federal Reserve’s interest rate outcome. The two-day policy meeting, slated to end on June 18, would likely be the fourth straight one where Fed chair Jerome Powell is likely to hold the rates steady, and risk irking US President Donald Trump, again.
While a weakening labour market and still above-target inflation are likely of influencers of Fed’s rate cut decision, the latest flare-up in tensions between Iran and Israel has introduced another element of uncertainty for the global economy, which could also be factored in.
The latest US retail inflation print defied the impact of tariffs for the second month in a row. Yet, policymakers are clear that they would make a move once the concerns around tariffs imposed by Trump are resolved. Thus, against this backdrop, analysts largely expect the Fed to maintain the status quo.
Headline at 2.4% with a sequential gain of 0.1% MoM, US CPI was significantly lower than the market expectation of 2.5%, up 0.2% MoM.
“May’25 US CPI was softer-than-expected, with any tariff impact not being felt for now due to the flood of front-run imported goods. While this print is somewhat reassuring, there remains very little signal in the data, with firms continuing to manage tariffs for now,” said Madhavi Arora, Chief Economist, Emkay Global Financial Services.
She added that the impact of the US tariffs will only show up in the date, either through higher inflation or lower profit margin, a few months down the line. “In such a scenario, the Fed will remain on wait-and-watch mode, with virtually no chance of a rate cut next week as it waits for tariff noise to settle,” Arora added.
All eyes on Fed ‘dot plot’
While the US central bank is widely expected to hold interest rates steady, investors are eager for any hints about whether the Fed might be poised to lower rates in the coming months. The Fed funds rate has been at 4.25%-4.50% since the central bank last eased in December, by a quarter percentage point.
Powell’s commentary will be of utmost importance, as he will share the latest round of projections, including the Fed “dot plot”, which is updated quarterly and shows each Fed official’s prediction about the direction of the Fed rate.
“US Fed is expected to keep interest rates unchanged at 4.25-4.5% in its upcoming 17-18 June meeting. All eyes are expected to be on the summary of Economic Projections and the dot plot for the way forward by the Fed. The Fed is expected to maintain its earlier projection of two interest cuts of 25 bps happening in 2025, with the first of the 25 bps cuts to happen in September. Because of geopolitical and trade relation risks, the inflation forecast can be slightly higher, along with growth moderately slowing down. Commentary from Jerome Powell and his tone while addressing issues such as inflation risk and global uncertainties remains the key,” opined Vaqarjaved Khan, Sr. Fundamental Analyst, Angel One.
In line of fire
This action, however, is likely to further pressurise Fed chair Powell, as Trump has been repeatedly making calls for a rate cut to support the slowing but otherwise healthy US economy.
Speaking at the White House on Thursday, Trump slammed the Fed chair over the lack of rate cuts, calling him a numbskull. Trump last Thursday said he “may have to force something” as part of his ongoing push for the central bank to lower rates by a full percentage point, but added he will not fire Powell before the end of his term in 2026.
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