FOMC Stand Pat As Central Bank Bonanza Continues

WHERE WE STAND – Yesterday was ‘Fed Day’ and, perhaps mercifully given everything else that’s going on right now, Powell & Co sprung nothing by way of surprises.

As expected, the target range for the fed funds rate was maintained at 4.25% - 4.50%, in a unanimous vote, with the accompanying policy statement also – barring a few housekeeping and grammatical changes – a ‘copy and paste’ job of that issued last time out.

The updated round of economic projections were also in line with expectations, as the SEP pointed towards slower near-term growth, and higher near-term inflation, even if both headline and core PCE are seen falling back towards the 2% target by the end of the forecast horizon.

These forecasts, frankly, made the new ‘dot plot’ a complete mess. While the median expectation remains for 50bp of cuts this year, seven FOMC members see no rate cut being delivered at all. Furthermore, the median expectation for both 2026 and 2027 was nudged higher, with just 25bp of easing pencilled in, in total, each year. The dots, though, are of little use at the best of times, least of all a time as uncertain as this, and participants should be careful not to place too much weight on them.

Chair Powell, meanwhile, at the post-meeting press conference, stuck resolutely to his recent script, noting that policy remains ‘well positioned’, while also pouring some cold water on the ‘dot plot’, stating that Committee members have low conviction in those projections.

On the whole, the June FOMC will go down as a ‘placeholder’ meeting, with the Committee sticking firmly to a ‘wait and see’ approach for the time being. While focus remains on ensuring that inflation expectations remain well-anchored, the FOMC will be sitting on their hands. The bar for a rate cut before Q3 is over remains a very high one indeed, with my base case being that just one 25bp reduction is delivered this year, most likely in December.

With the FOMC now out of the way, we have a bit of a dearth of scheduled risk events in the short-term, though geopolitical shenanigans will probably keep folk occupied in the meantime. Providing the situation in the Middle East remains relatively stable, though, and the impact on energy export infrastructure remains limited, attention will likely soon shift towards the next US jobs report on 3^rd July, and then the expiry of the ‘Liberation Day’ tariff pause on 9^th July.

While we move through that lull in the calendar, the ‘path of least resistance’ for markets seems to remain upside in the equity complex, upside in gold, continued choppy but rangebound trade in FX, and some lingering dip buying interest in Treasuries, especially if we get back towards 4.5% on the 10-year, or 5.0% on the 30-year.

As for yesterday, we can’t exactly describe Wednesday as the most exhilarating trading session that the world has ever seen.

Equities largely trod water, as pre-FOMC jitters capped conviction, before J-Pow delivered nothing by way of fresh information. Treasuries sold-off a touch after Powell spoke, but ended the day essentially unchanged. That, in turn, saw the dollar find some demand, though most G10s remain well within recent ranges hence my excitement is limited, with said excitement even lower for gold, which trod water all day.

All that said, whatever you do, I certainly shan’t be using the ‘Q’ word to describe any of that price action, at risk of tempting fate!

LOOK AHEAD – The central bank bonanza rolls on today, even though US desks are out for Juneteenth.

The Swiss National Bank (SNB) kick things off this morning, with a 25bp cut likely on the cards, though a larger 50bp reduction, and subsequent return to NIRP possible, being seen as about a one-in-four chance per the CHF OIS curve. In any case, no matter the size of the cut today, room for further reductions is clearly very limited indeed, hence meaning that language around possible FX interventions is likely to carry more weight than usual.

Following that, the Norges Bank are set to hold the policy rate steady at 4.50%, though are again likely to reiterate that rates will be reduced at some stage this year. Although, given solid demand, and elevated inflation, that cut isn’t likely to come before the autumn.

Rounding things out, we have the BoE at lunchtime. The ‘Old Lady’ is set to hold Bank Rate steady at 4.25%, though the MPC are again likely to be split on the appropriate policy path, with at least 2 dissenters – probably Dhingra & Taylor – instead preferring a 25bp cut. Meanwhile, the MPC’s guidance should reiterate that a ‘gradual and careful’ approach will be taken to future rate reductions, and that policy must remain ‘restrictive for sufficiently long’ to bear down on the risks of persistent price pressures. With that in mind, the next 25bp Bank Rate cut probably won’t come until August, in conjunction with an updated round of economic forecasts.