The Federal Reserve is widely expected to hold rates steady at 4.25%-4.50% on Wednesday as President Donald Trump's volatile tariff policy clouds the economic outlook.

The decision will mark the fourth straight pause in the rate-cutting cycle that began in September. Yet, rather than the rate decision itself, the key data to watch for markets will be release of new economic projections.

Wait-And-See Remains The Fed’s Mantra

Chair Jerome Powell and his colleagues have consistently repeated since May that monetary policy is "in a good place." Despite persistent calls from Trump to cut rates more aggressively, Powell is likely to maintain a data-driven approach and to push back pressures to cut prematurely.

David Mericle, economist at Goldman Sachs, said in a note last week the Fed is unlikely to make big moves until it gets more clarity, and that recent inflation data and easing trade tensions support staying on hold.

"The FOMC will likely reiterate that it plans to remain on hold until it has further clarity," he said.

Although both the U.S. and China rolled back 115 percentage points worth of tariffs in May, a 90-day freeze on the latest round of tariffs expires next month.

Goldman Sachs expects the U.S. effective tariff rate to be 14 percentage points. This will be enough to push inflation to 3.4% and to slow economic growth to 1.25% this year.

“The Fed’s main message at the June meeting will be that it remains comfortably in wait-and-see mode,” said Bank of America’s economist Aditya Bhave in a report last week.

All Eyes On New Economic Projections

Analysts expect the Summary of Economic Projections (SEP) to point to just one 25-basis-point rate cut in 2025, down from 50 basis points in March, and 75 basis points in total easing for 2026, unchanged from previous estimates.

Current market pricing shows that speculators factor in almost two rate cuts for 2025, according to CME Fed Watch tool.

Since March, tariffs policies have added more uncertainty to both inflation and economic growth.

Despite recent softer inflation readings, the Fed is unlikely to revise down its March projections, which saw headline Personal Consumption Expenditures inflation averaging 2.7% in 2025 and 2.2% in 2026, with core PCE at 2.8% and 2.2% respectively.

Real economic growth was projected at 1.7% for 2025 and 1.8% for 2026 in the Fed's March forecast. A downward revision to growth alongside an upward revision to inflation would confirm the Fed is leaning toward a stagflationary near-term outlook.

Bhave said the Fed is likely to revise its growth forecast lower while nudging inflation projections higher.

Markets will also be watching for any shift in the Fed's view on labor market softness, with the March unemployment forecast at 4.4%.

May's nonfarm payrolls rose by 139,000—slightly above expectations—but prior months were revised down by 95,000, while continuing jobless claims in late May climbed to their highest level since winter 2021.

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