🏦❗️Cable FX Macro Weekly Note: FOMC June Monetary Policy Meeting

**As seen in Risk In The Week report 06/15/25, get full access now! cablefxm.co.uk

At the May meeting, the Federal Open Market Committee (unanimously decided to maintain the federal funds rate at a range of 4.25% to 4.5%, where it has remained since December 2024. This marked the third consecutive meeting without a rate change, reflecting the Fed’s cautious "wait- and-see" approach amid economic uncertainties, particularly due to President Donald Trump’s tariff policies. The Fed noted that the economy continued to expand at a solid pace, with a "solid" labor market (unemployment at 4.2% in April) and "somewhat elevated" inflation (headline inflation at 2.3%, core at 2.6%). However, risks of higher unemployment and inflation had risen, largely attributed to trade volatility from tariffs. First-quarter GDP growth was negative due to a surge in imports ahead of new tariffs, though underlying economic activity remained resilient. The Fed highlighted increased uncertainty in the economic outlook, with tariffs expected to potentially raise inflation and slow growth, posing a stagflation risk. Fed Chair Jerome Powell emphasized no rush to adjust policy, stating, "We don't have to be in a hurry. The economy is resilient and doing fairly well."

Post-decision, markets saw a low probability (less than 30%) of a rate cut in June 2025, with July 2025 as the earliest likely window for a reduction, expecting two to three quarter- point cuts by year-end. As of time of writing, the swaps price in two full rate cuts this year, the first one seen in September at a 64% chance. Pricing is likely to be altered as we are set to receive a fresh batch of economic projections from the Fed staff. The last updated economic forecast saw the U.S. economy rising 1.7% and the core PCE deflator at 2.8% in 2025.

Strategists at Rabobank expect expect the FOMC to keep the target range for the federal funds rate unchanged at 4.25-4.50% on June 18. The formal FOMC statement and Powell’s press conference are likely to stress again that the Committee is waiting for more clarity about trade policy and the impact of tariffs on the economy. However, the new dot plot will already reveal how many rate cuts the FOMC still expects to make this year and beyond, they wrote in a note. Rabobank added that the Israel-Iran conflict could amplify stagflationary risks but not enough to alter their Fed forecast.