Leading financial institutions including Goldman Sachs, UBS, Morgan Asset Management, Allianz, and Barclays share a consensus view that the Federal Reserve will keep interest rates unchanged for the remainder of the year.
The Federal Open Market Committee (FOMC) is scheduled to hold its monetary policy meeting on June 16-17. This marks the first such meeting chaired by new Federal Reserve Chair Kevin Warsh. Market expectations are widespread that the target range for the federal funds rate will be held steady at 3.50% to 3.75%.
As the Fed enters the "Warsh era," what changes might be in store for monetary policy direction? Several major financial firms have offered their perspectives on this question.
Anticipated Rate Hold Through Year-End
The research division at Goldman Sachs forecasts that the Fed will not cut interest rates until 2027. David Mericle, the firm's chief US economist, has pushed back his prediction for the final two rate cuts of this cycle to June and December 2027, from previous estimates of December 2026 and March 2027.
Mericle noted in a report that US economic activity and labor market data have been stronger than anticipated in recent months, with a particularly notable rebound in job growth. Goldman Sachs Research still expects GDP growth in the second half of the year to be slightly below potential, as rising oil prices pressure spending. However, the firm predicts the US unemployment rate will only rise modestly to 4.4% this year, lower than a prior forecast of 4.6%.
Mericle also pointed out that Fed rhetoric has turned more hawkish in recent weeks, with many FOMC members indicating that rate hikes are possible if inflation worsens.
The Chief Investment Office (CIO) of UBS Global Wealth Management also published commentary, stating that while the next Fed move is still likely to be a rate cut amid slowing growth, they now expect rates to remain stable for a longer period. The timing of the next cut could be pushed back from a previously expected December of this year to March 2027, with another cut following in June of that year.
Michael Krautzberger, Chief Investment Officer for Public Markets at Allianz Investment, commented that in a rapidly changing economic and geopolitical environment, they expect the FOMC to hold rates steady this year. Resilient economic growth, a stabilizing labor market, and rekindled inflation pressures have shifted the risk balance toward a more hawkish stance.
Barclays released a research note indicating that despite high inflation, they still expect the FOMC to keep rates unchanged this year. The recent oil-price-driven surge in inflation is seen as transitory, with inflation expected to return close to 2% by 2027, making a 25-basis-point cut in March 2027 possible.
Zhu Chaoping, a Global Market Strategist at Morgan Asset Management, believes it is highly probable the Fed will maintain its benchmark rate in 2026. The outlook for 2027 carries greater uncertainty—if geopolitical conflicts ease and oil prices fall, inflation could be alleviated. However, if trillion-dollar AI infrastructure investments continue to push up costs, the possibility of the Fed restarting rate hikes cannot be ruled out.
The Most Divided FOMC in Over Three Decades
Zhu Chaoping explained that the new policy framework proposed by Chair Warsh is built on two core principles. The first is upholding Fed policy independence, strictly controlling direct central bank bond purchases to cover fiscal deficits, restoring monetary discipline and market credibility, and abandoning the model of unlimited easing to support government debt.
The second is leveraging the AI industry dividend to drive rate cuts in an environment of productivity gains and controlled inflation, constructing a policy mix of "balance sheet reduction and rate cuts," reducing frequent policy signaling, and relying on institutional discipline to stabilize market expectations.
However, Zhu Chaoping believes implementing the "Warsh Doctrine" this year faces significant hurdles. In the short term, high oil prices and AI infrastructure investments driving up raw material prices are causing elevated inflation, while the government aims to stabilize the stock market and economy during the election phase. With existing governors like Powell remaining, they may adhere to established monetary policy thinking, making it difficult for Warsh's new approach to quickly achieve internal consensus.
Michael Krautzberger noted that Warsh will chair his first policy meeting in an extremely complex environment, inheriting the most divided FOMC in over 30 years. At the April meeting, three voting members already dissented in favor of a more dovish stance, while outgoing Governor Stephen Miran voted again in favor of a rate cut.
Krautzberger pointed out that while Warsh has a reputation as a traditional inflation hawk, he also strongly believes that AI and productivity gains will drive inflation lower. Coupled with the Fed's balance sheet reduction, this could provide room for lower rates in the long run. However, this view is not widely shared within the Committee, which may complicate future policy discussions.
Heightened Focus on Warsh's Debut
Michael Krautzberger believes the post-meeting press conference will be closely watched by markets. Warsh has previously suggested that monetary policy may require a "regime change," and he is likely to face questions on this topic.
Marc Giannoni, Chief US Economist at Barclays, expects that as Fed Chair, Warsh will aim to minimize surprises and market disruption during his inaugural press conference as he works to establish his credibility in the new role.
Giannoni stated that they expect Warsh to indicate that upside risks to inflation and downside risks to employment remain elevated, with high uncertainty, particularly regarding the magnitude and persistence of the oil price shock. He will likely state simply that the FOMC is closely monitoring the two-way risks to its dual mandate of controlling inflation and stabilizing employment, striving to avoid sending a message perceived as overly hawkish.
Warsh may be questioned about various trends in the data and inflation measures. Barclays expects him to respond that he is monitoring a broad set of indicators, which generally point to resilient current economic activity and a labor market, alongside high inflation.
Regarding the direction of the policy rate, Barclays expects Warsh will likely refrain from providing forward guidance, instead stating that the FOMC will make decisions meeting-by-meeting, carefully assessing the latest data and updating economic projections each time.
Barclays anticipates the FOMC will lower its median projection for real GDP growth in Q4 2026 by 0.1 percentage point to 2.3%, reflecting weaker-than-expected Q1 GDP data. The projection for the 2026 unemployment rate is expected to be lowered by 0.1 point to 4.3%, aligning it with current data. Inflation projections for 2026 are expected to be significantly raised, mainly reflecting energy price increases due to the conflict with Iran.
Marc Giannoni noted that market focus will center on the "dot plot," which illustrates FOMC members' assessments of the appropriate path for the policy rate in coming years. The dot plot is likely to again show significant divergence among members on the rate path, though many members' expected policy rates are likely to be higher than in March.
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