It’s Fed week. And while nobody expects Jerome Powell to touch rates this time, that doesn’t mean markets will stay calm.
Traders are already bracing for what really matters: the dots, the tone, and the tea leaves.
The Federal Open Market Committee (FOMC) wraps its two-day policy meeting Wednesday, and while the base case is a clean hold at current levels, the updated projections could still jolt bonds, stocks, and FX, especially if the median forecast shifts.
Here’s what you actually need to know:
1. Two Cuts or One? Watch the Dot Plot
In March, the Fed’s median forecast pointed to two rate cuts this year. But just two members flipping their dots could drop that to one. That’s the kind of adjustment that gets priced in fast, yields, dollar strength, risk-off moves.
Traders will be circling this number. If expectations slip, it’s a tailwind for USD and a chill for equities.
2. Powell Will Stay in Wait-and-See Mode
Powell is expected to sound familiar: “Policy is in a good place.” It only means, they’re watching, not acting, yet. He’ll nod to soft jobs and low inflation but flag tariff uncertainty and geopolitical heat from the Middle East.
Caution rules. Unless Powell goes off-script, markets will stay in a holding pattern, unless the dots shift the mood.
3. Tariffs Are Still the Wild Card
BMO's Lyngan: “Muted realized inflation data has defied tariff-related inflation fears," with the Bloomberg index of inflation surprises falling to the least since 2020, but “[w]hile core inflation has trended surprisingly lower through the early stages of the trade war, there
— #Neil Sethi (#@neilksethi)
5:50 PM • Jun 17, 2025
Tariffs haven’t spiked inflation, yet. But that lag effect is what traders are wary of. Meanwhile, Trump’s calls for looser policy and trade spats with Iran and China keep pressure on the Fed.
Any hawkish nod to tariff risks could push rate cut hopes back. Think higher-for-longer vibes. Gold, crude, and USD/JPY traders should stay on their toes.
4. Soft Landing Still Intact For Now
Jobs are slowing, but not crashing. Inflation’s tame, but not falling off a cliff. Former Dallas Fed chief Kaplan nailed it: without tariffs, the Fed would probably be easing already.
The Fed’s staying patient, but if data turns south, the September cut odds shoot up. Right now, it’s a slow drift, not a dive.
5. Macro Projections: Minor Tweaks, Major Implications
Expect tweaks: inflation up to 3%, GDP trimmed to 1.5%, and unemployment nudged to 4.5%. Not massive, but enough to send a message.
Markets will read between the lines. A subtle downgrade across the board reinforces the “we’re watching closely” message without sounding alarms.
source: federalreserve.org, fredblog
Here’s the Takeaway:
This meeting isn’t about what the Fed does, it’s about what they signal. A hawkish hold with fewer cuts in the dot plot? USD rallies. A surprise dovish shift? Risk assets take flight.
The move may not be in the statement, but in the mood. Read the room, not just the release.
Stay cautious as always and sharp. And don’t trade Powell’s words, trade the reaction.
