LIVE MARKETS-The plan will be finalized once the battle begins

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THE PLAN WILL BE FINALIZED ONCE THE BATTLE BEGINS

Looking ahead to the next Federal Open Market Committee meeting due on June 17th and 18th, a team of UBS economists led by Jonathan Pingle, delved into the layers of uncertainty being assessed by the U.S. central bank.

The economists said in a recent research note that they expect the FOMC to keep rates unchanged and make little change to their statement.

However, they suggest that the June Summary of Economic Projections (SEP) may be the one where the FOMC begins to "stare at the trade-offs they could face."

And they found several ways to remind readers, that any action from the Fed, whose dual mandate is price stability and unemployment, will likely be data dependent.

The economists wrote that last week's non-farm payrolls report was "likely good enough to keep the FOMC message unchanged" even as they noted that it was softer under the hood.

One key question the FOMC may not be able to answer is, in the case that "tariffs end up pushing unemployment rates up noticeably how would restrictive monetary policy bring unemployment back down?" according to the UBS economists.

The economists also point out that any changes to the Fed funds rate "won't stop the tariffs."

"Not having the right tool for the job, and the two sides of their mandate in conflict, may be conundrums we see in the June SEP," they wrote.

But the economists see the FOMC waiting to adjust its stance until both rising unemployment and rising inflation are a problem at the same time.

To illustrate their point they go way back in time and quote a certain Prussian field marshal's statement from 1880 that "no plan of operations reaches with any certainty beyond the first encounter with the enemy's main force.”

Or to translate to the FOMC's present-day dilemma, they say that regardless of what is in the SEP "the FOMC likely does not know what the right response to the data will be until they see what that data says."

(Sinéad Carew)

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