Federal Reserve is expected to keep rates unchanged at tomorrow’s meeting

The Federal Reserve will end its policy meeting on Wednesday as pressure builds from the White House, Wall Street, and the Middle East.

With President Donald Trump back in the Oval Office and openly demanding interest rate cuts, and with the Israel-Iran conflict threatening global oil prices, Chair Jerome Powell is surrounded on all sides. But despite the chaos, no one expects a rate change this week. The main focus is on what Powell says about the rest of 2025.

Investors want to know if the Federal Open Market Committee (FOMC) will still forecast two cuts this year, how inflation expectations are evolving, and how Powell responds to Trump’s calls for looser policy. The Fed’s messaging will carry more weight than any actual move.

FOMC will reveal rate expectations as markets look for clues

The key feature tomorrow will be the dot plot, where all FOMC members submit their interest rate forecasts. In March, the group predicted two quarter-point cuts in 2025. But that was a narrow outcome. Just two members changing their votes could drop the forecast to one cut. That could move markets.

The meeting is happening in a tense geopolitical climate. Trump’s tariff threats haven’t moved prices much yet, but no one knows what the impact will be later. At the same time, the Israel-Iran war is raising concerns about oil supply and inflation. That conflict adds more uncertainty to every policy decision the Fed will make.

Powell is expected to repeat the same message from May: the Fed isn’t in a rush to act. But that posture could change fast if the data moves. A key issue is inflation. While the unemployment rate is still low at 4.2%, the May jobs report showed hiring is slowing. Inflation data has also stayed soft despite tariffs. The Fed may not act yet, but it’s watching.

Robert Kaplan, former Dallas Fed President, said in a CNBC interview, “We’re in a disinflating world. If it weren’t for these prospective tariffs that will flow through and are flowing through, I think the Fed would be on their front foot looking to cut rates.”

Powell likely to hold firm as Trump increases pressure

Markets are betting the next rate cut will come in September, a year after the Fed’s last move. In 2024, the FOMC cut rates by half a point in response to labor weakness, then made two more quarter-point cuts before pausing.

Since then, inflation has stayed low and the economy hasn’t shown major signs of damage. David Mericle, an economist at Goldman Sachs, said the firm still expects one cut this year. “Aside from the tariffs, the inflation news has actually been fairly soft,” he wrote. He added that if the Fed cuts this year, it likely won’t happen until December because the full effects of tariffs will still be fresh in the summer inflation data.

Goldman also expects new economic projections. Inflation expectations for 2025 could rise to 3%, up from 2.8% in March. GDP could be revised slightly lower to 1.5%, and unemployment could move up to 4.5%. These are small moves, but markets will watch closely.

Another factor shaping the Fed’s path is Powell’s term. He leaves office in May 2026, giving him just eight more meetings. History shows Fed chairs tend to take a cautious stance in their final stretch. Nicholas Colas, co-founder of DataTrek Research, noted that “The last 3 Fed Chairs—Alan Greenspan, Ben Bernanke, and Janet Yellen—all ended their terms on a hawkish note.” Colas said Powell is continuing that pattern, “focused on exiting the job with his inflation-fighting credibility and political independence intact.”

That legacy concern may explain why Powell isn’t rushing to cut even with slow inflation and weak job growth. Trump’s demands could complicate things, especially if new tariffs kick in, but the Fed wants to be seen as independent.

Right now, traders expect two cuts by the end of 2025, but more recently, the odds have moved toward just one. That reflects the market’s view that Powell won’t act unless absolutely necessary.

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