The world is closely watching for clues on interest rate cuts! Powell faces challenges this week: rate deadlock + White House firepower + Middle East tensions

According to the Zhitong Finance APP, as Federal Reserve officials hint at maintaining interest rates, investors and economists will focus this week on comments from Federal Reserve Chairman Jerome Powell to look for clues about the factors and timing that may ultimately prompt the Fed to take action.

Four consecutive meetings without a rate cut could provoke another fierce criticism from U.S. President Donald Trump. However, Fed policymakers have made it clear that they need the White House to address significant issues surrounding tariffs, immigration, and taxes before they take action. Israel's attack on Iranian nuclear facilities has also added another uncertainty to the global economy.

Meanwhile, the U.S. economy is slowly cooling down but remains generally healthy, with few expecting the Fed to adjust rates anytime soon. According to futures pricing, investors are betting that the Fed will not lower borrowing costs until at least September.

Seema Shah, Chief Global Strategist at Principal Asset Management, stated, "In the absence of any urgency to cut rates, the safest course of action is to remain on hold."

It is understood that the Fed will announce its interest rate decision at 2 PM Eastern Time on June 18 (Wednesday), followed by a monetary policy press conference by Powell.

Uncertainty Lingers

The market widely expects that Trump's tariff measures will drive up prices and slow economic growth, and Fed officials pointed out these risks in their last post-meeting statement. This could ultimately force the Fed to make difficult choices, as the economic situation is pulling the Fed in opposite directions.

David Hoag, a fixed income portfolio manager at Capital Group, said, "I don't think there's anything to worry about right now. But the longer uncertainty persists, the more I worry that the economic fundamentals will deteriorate, whether for consumers or businesses."

However, so far, there have been no warning signs prompting Fed intervention.

Despite a slowdown in job growth, the unemployment rate has remained stable for three consecutive months, partly due to a sharp decline in immigration, which has reduced labor supply. The longer the unemployment rate remains stable, the longer the Fed can keep rates unchanged to guard against potential inflation rises.

The U.S. job market remains stable

Price data has also not raised concerns. The core inflation rate in May was below expectations for the fourth consecutive month. Boosted by this news, U.S. Treasury bonds rose last week as the market anticipated multiple rate cuts this year. The two-year U.S. Treasury yield, which is most sensitive to Fed policy, fell by more than 7 basis points last week to 3.96%.

However, officials may need to wait several months of data to understand how much of the tariffs have been passed on to consumers. Israel's airstrikes on Iran will raise further questions. Fed officials typically pay attention to energy price trends, but oil price shocks could affect inflation expectations New Predictions Attract Attention

The latest economic and interest rate forecasts released this week may provide useful guidance for understanding the thoughts of Federal Reserve officials. This will be the first time the Federal Reserve has released forecasts since Trump announced comprehensive tariffs on April 2.

Shah stated that if officials predict that this year's unemployment rate will be significantly higher than their March forecast of 4.4%, it would mean that decision-makers might lower interest rates before the fourth quarter.

Some Federal Reserve officials, including Governor Waller, have already expressed a willingness to cut rates, as they believe that as long as inflation expectations remain stable, policymakers can view the expected impact of tariffs on consumer prices as temporary. This aligns with market indicators, suggesting that traders also believe the price increases triggered by tariffs will be short-lived.

However, Matthew Luzzetti, Chief U.S. Economist at Deutsche Bank, stated that if Federal Reserve officials raise their inflation expectations, the number of rate cuts this year could drop from two in March to one. Barclays strategists warned that such a "hawkish" signal could emerge unexpectedly.

Federal Reserve officials may also consider the significant uncertainty surrounding Trump's policies and thus simply maintain their forecasts.

Zachary Griffiths, Head of Investment Grade and Macroeconomic Strategy at CreditSights, said, "I would be surprised if these dot plots show significant volatility." Since the Federal Reserve released its forecasts in March, "it's been like a roller coaster." He added, "Overall, I think we might be in a similar situation."

When Will the Federal Reserve Cut Rates?

Some economists say that the timing of the Federal Reserve's next move will ultimately depend on how long it takes for Trump's policies to manifest in economic data and to what extent this raises concerns about a recession.

A Bloomberg survey of economists conducted from June 6 to 11 showed that 42% of respondents expect the Federal Reserve to keep interest rates unchanged until more obvious signs of economic weakness appear.

Julia Coronado, founder of research firm MacroPolicy Perspectives and former Federal Reserve economist, stated that she expects rate cuts to begin in October or December in response to a more pronounced slowdown in the labor market that will emerge by then