- The Federal Reserve is expected to hold interest rates steady. Investors will be keeping a close eye on Fed officials’ latest economic projections—known as the “dot plot.” Any variance between the most bearish and most bullish officials might hold a key for the future of U.S. monetary policy.
As the Federal Open Market Committee prepares to meet on Tuesday and Wednesday, the financial world largely already knows what to expect: more patience.
Throughout the year, the Fed has sought to remind investors the economy is still strong. Unemployment hasn’t spiked, and inflation has remained just north of 2%, despite fears to the contrary amid the White House’s aggressive tariffs. Even the stock market has mostly recovered from an extremely tumultuous April.
But there are some signs of sagging across the economy. Continuing jobless claims are at three-year highs, suggesting it’s harder for unemployed people to find new jobs, and manufacturing surveys have come in below expectations.
The key question investors and the Fed are trying to answer is whether this slight slackening presages a far worse outlook, even a recession, or whether reports of rising uncertainty merely reflect people’s feelings, not economic reality.
Despite the relative stability of inflation and the unemployment rate, a wave of uncertainty swept over investors this year, in large part because of the rampant changes to trade policy that upset global markets. Yet, Fed Chair Jerome Powell has argued the strength of the economic data, not sentiment, meant the central bank didn’t have to rush into making a decision on interest rates.
Investors expect the Fed will keep interest rates at their current levels of 4.25%-4.5% when policymakers wrap up their meeting Wednesday afternoon. They also see a rate cut later this year as a practical certainty, with a 93% probability of easing by the end of the year, according to CME FedWatch.
Meanwhile, President Donald Trump (and more recently Vice President J.D. Vance) have complained that Powell is taking too long to lower rates. Trump has also repeatedly questioned the merits of keeping the Federal Reserve independent, believing he should be involved in setting interest rates. Despite Trump’s unprecedented level of commentary about the Fed, Powell has always refused to comment on the White House’s criticisms.
“The Fed always seems to look for ‘the preponderance of evidence’ and has done so even when it has been accused of being too slow to act,” Melissa Brown, managing director investment decision research at SimCorp, told Fortune. “I think now they particularly want to assert their independence, so until there is something resembling a preponderance—one way or another—it seems to me they are most likely to keep rates where they are.”
The second dot plot of the year
The upcoming FOMC meeting will also include the latest iteration of committee members’ expectations for the federal funds rate. The so-called “dot plot” will help clue in investors to the variety of opinions on the committee, even as they expect the median response to be between one to two cuts in 2025.
It’s important for investors to get a sense of where the outliers on the dot plot are as well because that will help them understand whether Fed officials are more concerned about high inflation or low growth, according to Mike Reynolds, vice president of investment strategy at Glenmede.
There are “two completely separate policy playbooks on how to deal with each,” Reynolds said.
It’s common for Fed officials’ outlooks to be somewhat similar around this time of the year. But that may not be the case currently. “Generally the dots for the year tend to coalesce around a consensus, given uncertainty we wouldn’t expect that [this year],” he told Fortune. “The dots will remain more dispersed than usual.”
Last quarter’s dot plot showed committee members expected slower growth and higher inflation compared to their December forecasts. This time around, they are contending with slightly more conflicting data, as manufacturing metrics and GDP outlooks fell despite the fact job growth has continued and corporate earnings remain strong, according to Brown.
The new developments that saw manufacturing investment slow and GDP growth slip in the first quarter still aren’t enough to spur action from the Fed. Given that the Fed will likely stay its hand on rates, investors will take to parsing Powell’s words even more closely. They’ll want to know if and how this new batch of data is affecting Powell’s outlook.
After several months of rampant instability and rising anxiety about the future of the U.S. economy, investors will be eager to see if the Fed believes all that concern is having an effect.
“We haven’t seen concrete action that’s followed through on this heightened uncertainty,” Reynolds said.
This story was originally featured on Fortune.com