LIVE MARKETS-Wednesday on the dot: Anticipating the Fed's updated economic projections

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WEDNESDAY ON THE DOT: ANTICIPATING THE FED'S UPDATED ECONOMIC PROJECTIONS

On Tuesday, Powell & Co are due to convene for their two-day monetary policy meeting. The following day they are widely expected to announce that they've left the key Fed funds target rate unchanged in the 4.25% to 4.50% range.

But the star of the show will be the central bank's first update to its Summary of Economic Projections (SEP) since President Donald Trump threw a monkey wrench into the markets in the form of his "liberation day" tariff announcements.

Many of those tariffs have been placed on hold pending negotiations. And in the intervening months inflation data has cooled and the labor market has shown signs of softness.

And in the interim, Fed officials have been singing from the same songbook. The economy is on solid footing, which gives the central bank some breathing room to let rates sit at their current restrictive levels, for now, at least until they can better assess the impact of tariffs on price growth.

So what to expect from this updated SEP and the all-important "dot plot," which maps forward rate cut expectations?

"Keep in mind the equilibrium rate for Fed funds is somewhere around 3%, so they're being ultra hawkish and not cutting is a negative signal," Jay Hatfield, CEO and portfolio manager at InfraCap, tells Reuters. "I think they will soften that up by acknowledging that inflation has remained subdued and the labor market is weakening. But then they're going to cite continued uncertainty from tariffs."

Bear in mind, while the last SEP update happened before "liberation day," uncertainties were already mounting.

The March edition showed heightened uncertainties, hotter inflation expectations, higher unemployment estimates and weaker GDP.

Regarding the dot-plot, Hatfield adds "we would expect approximately two rate cuts to still be in the SEP for this year."

CME's FedWatch tool agrees; it shows financial markets are expecting 2025's first rate cut to land in September.

Goldman Sachs believes the Fed will raise its inflation projections.

"We expect the median projection to show slightly higher inflation this year of 3.0%, slightly lower GDP growth of 1.5%, and a slightly higher unemployment rate of 4.5%, reflecting a moderate increase in tariff expectations tempered by otherwise decent news from incoming data since March," according to Goldman Sachs' June FOMC preview.

Here's where we left the dot plot in March:

(Stephen Culp)

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