Fed expected to hold rates steady, signal neutral bias

The Federal Reserve is widely expected to keep interest rates unchanged at its upcoming meeting, marking the first policy decision under new Chair Kevin Warsh. Policymakers are anticipated to signal a neutral bias, potentially revising their post-meeting statement to drop any hint that the next step will be a reduction, and instead indicating rates may stay elevated for some time, or even rise should inflation prove sticky.

This comes as inflation has accelerated, climbing to a three-year high of 4.2%, driven largely by costlier petrol. Despite a potential peace deal framework announced by US President Donald Trump, fuel prices could take months to cool. Inflation has now run above the Fed's 2% target for more than five years. Hiring, meanwhile, has remained resilient, with May bringing 172,000 new jobs, removing much of the rationale for previous rate cut projections.

Attention will turn to the Fed's updated Summary of Economic Projections and its closely watched "dot plot." Traders see the Fed holding rates through much of the year, but are betting on a nearly 43% chance of a 25-basis-point rate hike in December, according to CME Group's FedWatch tool. Communication is also a key focus, as Warsh has previously argued for the central bank to speak less often and keep a lower profile, a stance that could unsettle markets accustomed to clear direction.