Synopsis:

MUFG expects the Fed to keep policy unchanged at today’s June FOMC meeting while reiterating that rates remain in restrictive territory. The dot plot is expected to stay largely unchanged, with two cuts projected for 2025 and 2026, and one in 2027. The dovish risk lies in potentially pulling the 2027 cut forward to 2026, while the long-run neutral rate could drift slightly higher.

Key Points:

Policy to Stay on Hold:

• Fed to maintain current rates, emphasizing that policy remains restrictive and appropriate given inflation risks.

Dot Plot Projections:

• 2025: Median dot to show 2 cuts

• 2026: Median dot to show 2 cuts

• 2027: 1 cut expected, but a dovish risk is that this cut could be pulled into 2026, resulting in 3 cuts for that year

• Long-run rate: Possible upward drift, though not a central expectation

Communication Focus:

• Fed will likely reiterate that rate cuts are still on the horizon but contingent on further inflation progress

• Emphasis on patience and data-dependence remains intact

Market Impact:

• A broadly unchanged dot plot would signal policy continuity, keeping markets anchored to a slow-cut trajectory.

• Any dovish tweaks (e.g., pulling forward a 2027 cut) could modestly weigh on the USD and front-end yields.

Conclusion:

MUFG expects today’s FOMC to be steady and largely uneventful, with the Fed reinforcing its restrictive stance while maintaining a gradual path to easing. The dot plot should show no major shifts, but a slight dovish tilt could emerge if the 2027 cut is brought forward—keeping the door open to flexibility in 2026 if conditions allow.