Institutional Outlook on the Federal Reserve's Interest Rate Path: Holding Steady with Little Suspense, Divergent Views on the Rate Outlook

BlockBeats News, June 18 — Several institutions expect the Federal Reserve to keep interest rates unchanged at this meeting, but there are clear disagreements on the future rate path. Market focus is on whether the statement will remove the wording indicating an easing bias and on new Fed Chair Kevin Warsh’s policy communication.

On the hold stance side, Moody’s predicts that the Fed is unlikely to cut rates in the short term, with maintaining current rates this year as the baseline scenario. If inflation expectations continue to rise, the next step may be a rate hike. Nomura Securities expects the Fed to keep rates unchanged through 2026. JPMorgan believes that interest rates will remain steady for the rest of this year, with the policy stance likely shifting from dovish to neutral. Wells Fargo states that unless the labor market overheats significantly or inflation outlook worsens further, it will be hard to find reasons for the Fed to take action. Bank of New York Mellon expects the Fed’s statement to suggest that rate risks are two-sided and to remove the 2026 rate cut expectation.

On the rate cut side, Goldman Sachs predicts the Fed will remove its previous forward guidance hinting at rate cuts, with a low likelihood of short-term rate hikes, expecting rate cuts in June and December 2027. UBS expects the Fed to formally cancel its easing bias but still believes the next move will be a rate cut, with 25 basis point cuts in March and June 2027. Citibank forecasts that as Middle East tensions ease, pushing oil prices down and labor markets weaken, the Fed will cut rates by 25 basis points in September, October, and December. Deutsche Bank expects the Fed may start cutting rates from mid-next year, with a total of 75 basis points cut by the end of 2027.

On the rate hike side, Capital Economics believes there is a high likelihood of two “insurance hikes” in December and early next year. BNP Paribas expects the Fed to hike for the first time as early as December. Deutsche Bank states that the baseline remains for rates to stay unchanged long-term, but the risk of future hikes is rising. PGIM forecasts three rate hikes this year to cool the economy, three cuts in 2027, and another cut in 2028, with the final rate at 3.375%.

Additionally, Barclays, Bank of America, ANZ, Mitsubishi UFJ, and MFS all expect the Fed to hold steady and believe the statement may remove or weaken the easing bias wording. MFS also states that Warsh may adjust the Fed’s communication style, such as no longer using dot plots or reducing press conferences. (Jin10)