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US central bank's monetary policy decision due on

Wednesday

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Fed expected to hold rates steady, investors watching

economic

projections

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Monthly retail sales out on Tuesday, with tariff impact

under

scrutiny

By Lewis Krauskopf

NEW YORK, June 13 (Reuters) - The Federal Reserve's

balancing act between concerns about a weakening labor market

and still above-target inflation will take center stage for

investors in the coming week as they weigh risks to the rally in

the U.S. stock market.

The S&P 500 was on track for its third straight week of

gains, building on a rebound in equities since early April, as

the benchmark index edged closer to an all-time high. Worries

about the impact of trade barriers on the economy have eased,

helping drive stocks since President Donald Trump's "Liberation

Day" announcement on April 2 sent the market plunging.

The Fed's two-day monetary policy meeting could present the

next major obstacle for markets. While the U.S. central bank is

widely expected to hold interest rates steady when it announces

its decision on Wednesday, 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.

"What the Fed is going to have to try to do next week is

encourage the belief that they are able to act without actually

promising anything," said Drew Matus, chief market strategist at

MetLife Investment Management. "If they move rates lower too

early before there is evidence that there is weakening in the

economy that they can then point to, they raise the risk of

actually boosting inflation expectations further."

At its last meeting in May, the central bank said risks of both

higher inflation and unemployment had risen. The Fed has a dual

mandate to maintain full employment and price stability, and

investors will be seeking any signs of whether officials are

more concerned about one of those goals and what that means for

the path of rates.

One area of focus on Wednesday will be an update to Fed

officials' projections about monetary policy and the economy,

which were last published in March.

Larry Werther, chief U.S. economist of Daiwa Capital Markets

America, will be watching estimates for unemployment. While the

Fed officials' last projection was for unemployment to end 2025

at 4.4%, Werther is projecting a year-end rate of 4.6%, saying

recent data including jobless claims has indicated softening in

the labor market.

"If the unemployment rate is expected to move higher, just

aligning with what we've seen in the labor market, and inflation

isn't expected to move much beyond what the Fed is projecting,

then it opens the door to further easing in support of the labor

market later this year," Werther said.

Fed funds futures indicate markets expect two rate cuts by the

end of this year, with the next one likely in September,

according to LSEG data. Such bets were bolstered by benign

inflation reports this week.

Investors are also focused on Trump's selection to succeed Fed

Chair Jerome Powell, with the president regularly urging the

central bank to lower rates. Trump earlier this month said a

decision on the next chair would be coming soon, although he

said on Thursday that he would not fire Powell, whose term ends

in May 2026.

The release of monthly retail sales on Tuesday will also be

in focus. Investors want to see if tariffs are leading to higher

prices that pressure consumer spending.

Trade developments are likely to continue to keep markets on

edge, with a 90-day pause on a wide array of Trump's tariffs set

to end on July 8. A trade truce this week between China and the

United States offered hope that the two countries can reach a

lasting resolution, but the absence of detailed terms left room

for potential future conflict.

The S&P 500 is up nearly 3% so far this year. But the

index has rallied over 21% since its low for the year on April

8, and is only 1.6% off its record high set in February.

"The market has rallied so hard, so fast," said Marta

Norton, chief investment strategist at retirement and wealth

services provider Empower. "There is vulnerability to anything

that doesn't support that kind of benign narrative that has been

established."

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