Institutional Outlook on the Federal Reserve Interest Rate Path: Status Quo Likely, Divergent Views on Rate Outlook

June 18 — Multiple institutions expect the Federal Reserve will keep interest rates unchanged at its upcoming policy meeting, though there’s significant divergence on the future rate path. The market’s focus is on whether the Fed will remove dovish-biased language from its post-meeting statement and how new Fed Chair Kevin Warsh will approach policy communication. On the "hold" side: Moody’s sees the Fed as unlikely to cut rates in the near term, with its baseline scenario calling for rates to stay flat all year. It notes a potential shift to rate hikes could come if inflation expectations continue to rise. Nomura Securities forecasts the Fed will hold rates steady through 2026. JPMorgan believes rates will remain unchanged for the rest of this year, with the policy stance likely transitioning from dovish to neutral. Wells Fargo states there’s little reason for the Fed to act unless the labor market overheats significantly or the inflation outlook deteriorates further. BNY Mellon expects the Fed’s statement to signal rates face two-way risks and scrap any expectations for 2026 rate cuts. On the rate-cut side: Goldman Sachs expects the Fed to remove previous forward guidance hints of rate cuts, seeing a low likelihood of a near-term hike and projecting rate cuts in June and December 2027. UBS says the Fed will formally abandon its dovish bias but still believes the next policy move will be a rate cut, forecasting reductions in March and June 2027. Citi predicts the Fed will cut rates by 25 basis points in September, October, and December, driven by easing Middle East tensions pushing oil prices lower and a weakening labor market. Deutsche Bank expects the Fed to start cutting rates in mid-2027, totaling 75 basis points in cuts by the end of 2027. On the rate-hike side: Capital Economics sees a high probability of two "insurance rate hikes" in December and early next year. Barclays expects the Fed’s first rate hike could come as soon as December. Deutsche Bank’s baseline judgment still calls for rates to stay unchanged long-term, but the risk of future hikes is increasing. PGIM projects the Fed will hike rates three times this year to curb economic overheating, cut rates three times in 2027, and cut once more in 2028, reaching a final policy rate of 3.375%. Additionally, institutions including Barclays, Bank of America, ANZ Bank, Mitsubishi UFJ, and MFS all expect the Fed to hold rates steady, and believe the statement may delete or weaken dovish-biased phrasing. MFS also noted Warsh could adjust the Fed’s communication style, such as discontinuing the dot plot or reducing the frequency of press conferences. (FXStreet)