The Federal Open Market Committee is widely expected to maintain the range for its federal funds rate at the current 3.50% to 3.75% for the fourth straight meeting as uncertainty remains elevated, putting the focus on the updated Summary of Economic Projections.
Currently, the CME's FedWatch Tool sees a 99.6% chance of no change to the current target range.
The FOMC's statement following Wednesday's meeting is due for release at 2:00 pm ET, with Federal Reserve Chairman Kevin Warsh's press conference scheduled to begin at 2:30 pm ET.
Since the April 28-29 FOMC meeting, comments from Fed officials have been mixed, with differences on whether price effects from the conflict in the Middle East will be temporary or longer-lasting, and how the FOMC should react.
Additionally, this will be the first FOMC meeting held under the leadership of new Chair Kevin Warsh, combined with the unusual scenario of having his immediate predecessor, Jerome Powell, present as a governor.
Fed Vice Chair for Supervision Michelle Bowman said on May 29 that more clarity is needed on the situation in the Middle East before overreacting to what could be a one-time spike in energy prices, while conversely Fed Governor Lisa Cook said on May 28 that she is prepared to raise interest rates if inflation remains elevated but said that she is expecting inflation to slow without rate increases.
The more middle road of participants suggested that Fed could be on hold for a while and that risks are tilting back toward concerns about higher inflation.
In fact, minutes of the April 28-29 FOMC meeting showed that a majority of participants appear to be leaning away from certain rate cuts in the near future and are open to the possibly of rate increases. Many participants, not just the three voters that dissented at that meeting, wanted a change to the post meeting statement to reflect that possibility.
Those changing sentiments could be seen in updates to the SEP, which indicated the belief that rates could be cut one more time in 2026 as recently as the March meeting. Removing that expectation, as well as one for a reduction in 2027, would signify a major shift in thinking that would be in line with the market outlook.
Currently, there is a 60% chance being priced in for at least one rate increase by the end of 2026, with some outliers seeing as many as three rate hikes.
Updates to economic expectations, particularly the inflation outlook, as well as any comments from Warsh, will also dictate the markets response.