We expect the Federal Reserve to raise the federal funds rate by 25 basis points and to continue its tightening stance. We anticipate that the policy statement will not change much, except to acknowledge recent signs of softening inflation. After the CPI data was released, the views of Fed speakers largely aligned, although the current inflation trend is encouraging, the evidence of a rapid cooling in inflation is still unclear. Finally, we expect the Fed to reiterate that inflation remains at a relatively high level and that it is still “highly attentive to inflation risks.”

There are currently two dovish risks. First, if the statement explicitly acknowledges signs of softening inflation, market participants might reinforce expectations that the terminal rate has arrived. Additionally, Fed officials previously stated they are “highly attentive to inflation risks,” and if this time the word “highly” is removed, it would also be seen as an unexpected dovish signal. At the press conference, we look forward to Powell clearly explaining: what kind of indicator signals does the Fed need to see before it stops raising rates. (The above views are from JPMorgan Chase and are for reference only.)