US Fed Preview Tonight: Will It Stay Put, or Could the Dot Plot Signal Hawkishness?

At 2:00 AM Beijing time on Thursday, the US Fed will announce its interest rate decision and the latest Summary of Economic Projections (SEP), followed by a press conference by Fed Chairman Powell at 2:30 AM.

The market generally expects the Federal Open Market Committee (FOMC)to maintain interest rates unchanged at 4.25%-4.5%.A recent Reuters survey showed that 103 out of 105 economists surveyed expected rates to remain unchanged, while 2 expected a 25-basis-point interest rate cut.

In the same survey, among the 105 economists,59 predicted that the US Fed would resume interest rate cuts in the next quarter (possibly in September), while 60% of economists expected two interest rate cuts this year,consistent with the median dot plot in March and relatively aligned with money market pricing, which anticipates a 46-basis-point easing by the end of the year.

Newsquawk noted in its outlook that, given the ongoing uncertainty about the economic impact of Trump's tariff policies, the US Fed may continue to adopt a "wait-and-see" approach and closely monitor the latest SEP, which will be released alongside the interest rate decision;among which, the 2025 dot plot will be a key focus, currently indicating a 50-basis-point interest rate cut this year.

As repeatedly emphasized by the vast majority of committee members this year, the clear message is that there is currently no obvious need for immediate policy adjustments,and adopting a patient approach is the best choice.Future data releases will ultimately bridge the divergent views on inflation and growth/employment. Therefore, as Jefferies Group pointed out, "waiting and seeing" is better than "pre-emptive action."

Recent data have shown strong job growth and some easing of inflation, although tariff risks remain a concern, while the market is now also paying extra attention to the potential inflationary impact of the Israel-Iran conflict.Future data releases will be crucial for policy formulation.

Policy Statement

Officials may no longer say that uncertainty has "further increased," but will simply state that it "remains elevated."

Regarding the June FOMC statement, Morgan Stanley believes that, given the high degree of uncertainty and the risks on both sides of the Fed's mandate,the most likely outcome is minimal changes in wording.

The statement may still mention the ambiguous impact of net export fluctuations on overall GDP data signals. April's trade data showed a significant reversal in imports due to the reversal of some "front-loading" purchasing behavior.

The US Fed will continue to draw signals from final sales to domestic purchasers (GDP minus trade and inventory) and final sales to domestic private purchasers (final sales to domestic purchasers minus government spending).

Recently, inflation data have generally fallen short of expectations,which implies that there is a risk for committee members to revise the phrase "inflation remains elevated."In recent months, the YoY change rates for both headline and core inflation have declined slightly, consistent with further inflation declines prior to the tariffs. However, Morgan Stanley believes that the anticipated tariff effects, combined with geopolitical risks in the Middle East and soaring oil prices,may keep the Fed's assessment of inflation unchanged.

Morgan Stanley believes that the Fed has not yet reached a consensus on this matter;if so, the key message in the statement will be that "uncertainty remains high."

Summary of Economic Projections

The Fed's meeting statement and Powell's remarks at the post-meeting press conference are expected to reiterate a wait-and-see stance, but the latest interest rate dot plot will directly reveal the FOMC's expectations for the number of interest rate cuts this year and beyond.

UBS forecasts that Powell may emphasize the uncertainty of the economic outlook at the press conference, and even downplay the guidance role of the interest rate dot plot. However,UBS believes that the tone of this meeting will be relatively hawkish—the robust performance of non-farm payrolls data in May is sufficient to support the Fed in maintaining interest rates unchanged, and the duration of high interest rates may be longer than expected in March. Therefore, UBS expects the median interest rate for 2025 and 2026 to be raised.

In addition, the June Summary of Economic Projections will more fully consider the impact of reciprocal tariffs compared to March,which may lead to further increases in inflation and unemployment rate expectations.

Citi maintains its previous judgment, believing that the median of the dot plot will still show two interest rate cuts this year (each of 25 basis points).

Goldman Sachs' economic model indicates that the effective tariff rate will ultimately rise by 14%, with over 9% coming from tariff measures already in effect and the remainder stemming from anticipated industry-specific or key imported goods tariffs to be implemented subsequently. Based on this assumption, and combined with the current limited policy transmission data,Goldman Sachs forecasts that core Personal Consumption Expenditures (PCE) inflation will rebound to a peak of 3.4%.

More severely, reciprocal tariffs may lead to a nearly 1% decline in GDP growth this year by suppressing consumer spending and exacerbating uncertainty in corporate investment. If combined with the chain reactions of fiscal and immigration policy adjustments, the YoY GDP growth rate in Q4 2025 may slow down to 1.25% (below potential levels), with the unemployment rate rising by 0.2 percentage points to 4.4%.

Therefore, Goldman Sachs expects the US Fed to slightly lower its GDP growth forecast for 2025 to 1.5%, while raising its unemployment rate forecast for the same year to 4.5%.

On inflation, the overall and core PCE inflation rates for 2025 may be revised to 3.0% and 2.3%, respectively. These adjustments reflect that, despite the moderate performance of recent economic growth, labour market, and inflation data, the upward pressure on tariff rates has significantly widened compared to the March meeting.

Dot Plot

Goldman Sachs anticipates that the US Fed will adopt a conservative stance on the dot plot. Although the median dot may indicate two interest rate cuts to 3.875% in 2025 and another two cuts to 3.375% in 2026, the voting distribution for 2025 is expected to be extremely tight—10 officials support two rate cuts, while the other nine lean towards only one cut or no cut at all.

The bank also forecasts that the average interest rate expectations for 2025 and 2026 will be slightly revised upwards, as some officials may delay or cancel their interest rate cut plans for this year.

Michael Feroli of JPMorgan Chase pointed out that, since the release of the March Summary of Economic Projections (SEP), changes in trade policy have forced the US Fed to significantly adjust its economic outlook, as evidenced by the subtle changes in the wording of the May FOMC statement.

JPMorgan Chase expects that, while the "stagflationary adjustment" does not explicitly guide the direction of the dot plot, the bank still believes that the overall tone will lean towards hawkishness—especially after Powell emphasized the priority of price stability at the May press conference, most members of the Committee may have shifted in tandem. JPMorgan Chase forecasts that interest rates will approach neutral levels by the end of 2027, while the median long-term neutral interest rate may be revised upwards by 0.125% to 3.125%.

First Interest Rate Cut: December as the Last Line of Defense?

Despite widespread market bets on an interest rate cut starting in September, Goldman Sachs maintains that the FOMC will conduct its first interest rate cut in December, followed by two more cuts in 2026 to a terminal rate of 3.5%-3.75%.

Its rationale is that, apart from tariffs, recent inflation data have actually been weak—expected wage growth from surveys has fallen to 3.0%, and alternative indicators such as the increase in rents for new tenants have also pulled back to 2.0%, all suggesting that core PCE inflation may fall below 2.0%. However, the peak impact of summer tariffs on inflation coincides with the Fed's decision-making window, making action before December unlikely.

It is worth noting that Goldman Sachs recently lowered its probability of a recession within 12 months from a brief spike of 50% in early April to 30%, which is still double the historical average. After risk adjustment, the bank's probability-weighted interest rate forecast is broadly in line with market pricing, suggesting that current interest rate cut expectations have already fully priced in the potential risks of economic deterioration.

Technical Analysis of Gold

FXStreet analyst Dhwani Mehta stated that from a technical perspective, the bullish bias in gold prices remains intact as the 14-day Relative Strength Index (RSI) stays above the 50 midline, currently near 55. Gold prices have also successfully held above the previous strong resistance level (now turned support) of $3,377, which is the 23.6% Fibonacci retracement level of the record-breaking rally in April.

If the outcome of the US Fed meeting is interpreted as hawkish, gold prices will need to find a firm foothold below the aforementioned support level.

Once 3,350, the psychological resistance level in US dollars, is breached, the next downside cushion will point to the 21-day Simple Moving Average (SMA) at 3,341 US dollars. Further downside will test the 50-day SMA at 3,308 US dollars.

To sustain a higher move, gold prices must effectively break through the static resistance level at 3,440 US dollars. The next upside target is at the two-month high of 3,453 US dollars, and a break above this could challenge the all-time high of 3,500 US dollars.