(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Jamie McGeever

ORLANDO, Florida, June 12 (Reuters) - At the Federal

Open Market Committee meeting next week, investors will

scrutinize all communications for any sign that the recent

softening in U.S. inflation could be enough to nudge

policymakers closer to cutting interest rates.

Current economic data might be leaning in that direction,

but policy out of Washington could well keep Chair Jerome Powell

and colleagues in 'wait and see' mode.

No one expects the Fed to cut rates next week, but

businesses, households and investors should get a better sense

of policymakers' future plans from the revised quarterly Staff

Economic Projections and Powell's press conference.

Powell was very clear in his post-meeting press conference

last month that the Fed is prepared to take its time assessing

the incoming economic data, particularly the impact of tariffs,

before deciding on its next step.

He told reporters no less than eight times that policy is in

a "good place" and said four times that the Fed is "well

positioned" to face the challenges ahead. Will he change his

tune next Wednesday?

Annual PCE inflation in April was 2.1%, the lowest in four

years and virtually at the Fed's 2% target, while CPI inflation

in May was also lower than expected. The labor market is

softening, economic activity is slowing, and recent red-hot

consumer inflation expectations are now starting to come down.

In that light, it may be surprising that markets are not

fully pricing in a quarter-point rate cut until October.

"The upcoming meeting offers an opportunity (for Fed

officials) to signal that the recent mix of tamer inflation and

softer consumption growth warrant a careful 'recalibration' of

rates lower, while remaining very cautious about what comes

next," economist Phil Suttle wrote on Wednesday.

But there are two well-known barriers that could keep the

Fed from quickly re-joining the ranks of rate-cutting central

banks: tariffs and the U.S. fiscal outlook.

WASHINGTON WILD CARD

Tariffs have yet to show up in consumer prices, especially

in goods, and no one knows how inflationary they will be. They

could simply result in a one-off price hit, they could trigger

longer-lasting price spikes, or the inflationary impact could

end up being limited if companies absorb a lot of the price

increases. In other words, everything is on the table.

Equity investors appear to be pretty sanguine about it all,

hauling the S&P 500 back near its all-time high. But Powell and

colleagues may be slower to lower their guard, and for good

reason.

Although import duties on goods from China will be lower

than feared a few months ago and Washington is expected to seal

more trade deals in the coming weeks, overall tariffs will still

end up being significantly higher than they were at the end of

last year, probably the highest since the 1930s.

Economists at Goldman Sachs reckon U.S. inflation will rise

to near 4% later this year, with tariffs accounting for around

half of that. This makes the U.S. an "important exception" among

industrialized economies, the OECD said last week.

The other major concern is the U.S. public finances.

President Trump's 'big beautiful bill' being debated in congress

is expected to add $2.4 trillion to the federal debt over the

next decade, and many economists expect the budget deficit will

hover around 7% of GDP for years.

With fiscal policy so loose, Fed officials may be reluctant

to signal a readiness to loosen monetary policy, especially if

there is no pressing need to do so.

FOMC members in December last changed their median forecasts

for the central bank's policy rate, hiking it this year and next

year by a hefty 50 basis points to 3.9% and 3.4%, respectively.

They left projections unchanged in March amid the tariff fog.

That implies 50 basis points of rate cuts this year and

another 50 bps next year, which is pretty much in line with

rates futures markets right now. So perhaps Fed policy is still

in a "good place", but with economic expectations changing

quickly, it's unclear how long that will be the case.

(The opinions expressed here are those of the author,

a columnist for Reuters)

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(Editing by Andrew Heavens)