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Fed Dot Plot Likely to Indicate 'Stagnant' Monetary Policy Through 2026-End, Stifel Says

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Fed Dot Plot Likely to Indicate 'Stagnant' Monetary Policy Through 2026-End, Stifel Says

The Federal Reserve's latest "dot plot" will likely show that most officials expect monetary policy to be "stagnant" for the rest of the year amid concerns over inflation, Stifel said Tuesday.

Markets widely expect the central bank's Federal Open Market Committee to leave its benchmark lending rate unchanged between 3.50% and 3.75% Wednesday, which would mark its fourth consecutive pause, according to the CME FedWatch tool.

The Fed is also scheduled to publish its latest Summary of Economic Projections, or SEP, document Wednesday. The SEP includes the so-called dot plot, which anonymously shows 19 individual members' expectations regarding monetary policy. The document also contains estimates on economic growth, inflation and unemployment.

"While the dots won't necessarily consolidate, given the acceleration of inflationary pressures as of late, the dots are likely to shift higher, with the majority of Fed officials forecasting potentially stagnant policy through year-end," Stifel Chief Economist Lindsey Piegza said in a note to clients Tuesday. "The committee is expected to remove the lingering easing bias from the statement, signaling instead an equal probability of the next policy move being a rate cut or a rate hike."

In March, the SEP indicated potential monetary policy easing this year.

The updated SEP is expected to indicate policymakers raising their US inflation outlook amid increasing energy prices, as well as their economic growth expectations, reflecting "a pickup in productivity amid a rapid and ongoing adoption of (artificial intelligence)," Piegza said Tuesday.

The two-day meeting, which got underway Tuesday, is Kevin Warsh's first as Fed chair, who assumed the role last month, replacing Jerome Powell.

Last week, official data showed that US annual inflation accelerated to the highest in about three years in May.

Recently, UBS Securities said the FOMC's dot plot may signal no interest rate cuts until 2028. The brokerage flagged the possibility of a tighter monetary policy amid the energy price shock stemming from the Middle East conflict.

The US and Iran recently reached an agreement to end their war and reopen the crucial Strait of Hormuz after more than three months of conflict that disrupted regional stability and global shipping routes.

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