Goldman Sachs believes the Federal Reserve will keep its policy unchanged during the June meeting. They highlight significant uncertainty and balanced risks. While there might be slight changes to inflation and growth forecasts, no immediate actions are predicted. Rate cuts are likely to happen later, probably in December, as tariff effects are expected to unfold. The Fed is projected to maintain current interest rates, recognizing ongoing uncertainty and balanced risks. Chair Powell is expected to communicate that future projections are contingent and not set in stone. The Summary of Economic Projections (SEP) may be slightly adjusted, predicting 2025 inflation at 3.0%, GDP growth at 1.5%, and unemployment rising to 4.5%. The dot plot suggests two rate cuts to 3.875% in 2025, with a tight 10–9 split among participants. For 2026, two additional cuts to 3.375% are expected, and one more cut to 3.125% in 2027. The long-run neutral rate is still at 3.0%. Although there are assumptions of higher tariffs, recent easing and low inflation reports should limit changes to forecasts. The first expected rate cut will be in December, with two more in 2026. Tariff effects on inflation this summer will likely prevent earlier rate cuts. Overall, Goldman predicts the FOMC will maintain current rates, starting to cautiously ease in December due to uncertainty. The impact on the USD is likely to be minimal unless Chair Powell indicates a shift in caution. Currently, the central bank is hesitant to change its position too quickly, and this is understandable. The disconnect between current inflation trends and the Fed’s goals suggests that the decision to pause is a cautious, not comfortable, move. It’s clear that the Fed is not indifferent; they are playing a waiting game. They recognize that while inflation is gradually decreasing, it’s not stable enough for early rate cuts, especially with new tariffs in future projections. Powell is expected to emphasize the uncertainty of forecasts, suggesting we should view projections as temporary estimates rather than firm commitments. We are not looking at fixed points but rather a blurred map, illustrating how constrained the Fed currently feels. The persistence of inflation and the lag in policy both increase the risk of miscalculating a move. The dot plot indicates a nearly even split among members, which shows a lack of strong agreement about expectations for 2025. While two rate cuts are likely, the 10–9 split indicates uncertainty. Markets often respond more strongly when there is broader consensus, so this division may delay certainty traders seek. It’s also notable that expectations for the terminal rate remain around 3.0%. This serves as a useful reference but is not something to strictly follow. Observing what stays consistent provides valuable insights. Over a longer time frame—especially into 2026 and 2027—rate cuts appear to progress gradually without extreme shifts. This signals that aggressive policy changes are unlikely, and any easing will be slow and methodical. Considering tariffs, they are becoming more of a short-term issue rather than a larger threat. Their inflation effects in summer will likely be why the Fed holds off until later this year. We’ve seen this pattern before, where rising costs eventually impact consumer prices. This may dampen immediate hopes for a policy shift. So far, the currency response has been stable. Powell would have to notably change his tone for the USD to react strongly, which seems unlikely unless inflation data significantly changes or growth falls considerably. Currently, the foreign exchange market seems to trust the message of stability until December. In the coming weeks, monitoring non-core inflation readings will be crucial. These data points will help determine if the projected path remains aligned or needs adjustment. Paying attention to smaller data trends may provide valuable insights regarding rate expectations, often more so than typical month-end figures. Additionally, indicators like continuing claims and job quits might reveal more about labor market softness than just the unemployment rate. With positioning leaning slightly towards a longer holding period, short-end volatility might increase. This could create opportunities for traders looking to exploit price changes from minor economic surprises. Being overly eager for 2025 rate cuts may prove costly if inflation rises in summer. It’s essential to stay within the limits of the Fed’s own economic forecasts, even if they come with uncertainties. Finally, inflation expectations are close to target. Even with tariffs ahead and real yields stabilizing, forward inflation swaps and breakevens have not shown extreme reactions. This supports the case for maintaining rates in the near term and aligns with a late-cycle easing perspective rather than an early-cycle reset. In summary, the core message is clear: the status quo will remain until data justifies a change. Until that happens, the best course of action is to observe closely and respond thoughtfully.

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