We expect a status quo in 17th June FOMC meeting with a hawkish FOMC statement. New Fed Chair Kevin Warsh might try to tone down the hawkishness of the FOMC statement but without supporting data, he too might not want to commit too much himself. We expect the Committee to remove an easing bias from the policy statement with unanimous support. The median projections for the federal funds rate are likely to show no changes for 2026 and 2027, followed by one rate cut in 2028. We expect the median longer-run projection to be revised slightly higher. Chair Warsh is unlikely to submit his own economic and policy projections, consistent with his past criticism of forward guidance. In his press conference, we expect he will acknowledge the current hawkish macroeconomic environment but will likely make a case for policy easing in the medium term. Since the April FOMC, US economy has shown consistent trends of strong employment with elevated inflation. Although core CPI inflation slowed to 0.208% m-o-m in May, we expect May core PCE inflation rebounded to 0.34%, driven by PCE components derived from PPI data. On a y-o-y basis, core PCE inflation likely inched higher to 3.426% in May, the highest since October 2023. Fed Speak since the April FOMC has been hawkish. Several FOMC participants explicitly discussed the possibility of a rate hike. But there is still a dovish fraction at FOMC consisting of NY Fed President Williams, Governor Bowman & SF Fed President Daly. Based on recent Feds Speak, we expect the median dots for 2026 and 2027 will rise to 3.625%, indicating no changes from the current rate level for the next one and a half years. In the long run, many policymakers will likely maintain their long-term disinflation scenario as their base case, and we expect the median 2028 dot to be 3.375%, consistent with one rate cut. We expect the longer-run median dot (a proxy of the neutral rate of interest), will be revised up slightly to 3.250% from 3.125%. Since the March FOMC meeting, inflation data have been stronger than the March median projection implied. As a result, we expect the median inflation projection for both the headline PCE and core PCE price indices will rise over the near term Markets are pricing in a 80% probability of 25 bps hike by Dec’26 and some more by mid CY27. We expect short end pricing to remain around current levels varying between 50-100% of a rate hike by Dec'26.
