Washington: The Fed is expected to keep rates unchanged at a two-day meeting Tuesday and Wednesday, while the attention is concentrated on new chair Kevin Warsh, as he will be conducting his first monetary policy decision meeting. The Fed is expected to hike rates once by the end of the year due to strong employment and rising inflation, though the likelihood has somewhat eased amid positive geopolitical developments. Markets will be on the lookout for signals about future policy in Warsh's remarks after the meeting -- the volatility in the markets could rise based on the signals.

According to Anadolu Agency, Philip Marey, senior US strategist at Rabobank, stated that Warsh will "remove the easing bias" from the bank's policy statement and take the 2026 rate cut projection off the dot plot, given that the US' consumer price index (CPI) rose 4.2% in May and nonfarm payrolls averaged an increase of 188,000 during the last three months. Marey also mentioned that a more interesting aspect of Warsh's first post-meeting press conference could be his analytical framework to interpret the supply shock from the Middle East, which would provide insights into how he plans to convince the FOMC of cutting rates in the next 12 months. Additionally, Marey suggested that it would be noteworthy to observe how Warsh articulates his aversion to data dependence, forward guidance, and near-term forecasting.

Marey further explained that while the Strait of Hormuz bottleneck persists and the US labor market strengthens, the Fed is expected to maintain rates steady for the remainder of 2026, with two rate cuts anticipated in 2027.

James Knightley, chief international economist at ING, also shared his insights with Anadolu. He indicated that the improving economic momentum and rising US inflation could prompt the Fed to assess the possibility of future rate hikes, but Warsh may not provide a definitive answer at his first news conference. Knightley highlighted that the US economy is less affected by Middle East risks due to its energy independence, but it is still not completely immune. He noted that business surveys point to an economic growth of 2% -2.5% despite rising inflation as new jobs are created and stock markets reach new records.

Knightley added that while the Fed is expected to maintain its monetary policy, a statement pointing to the possibility of a future rate hike may emerge. He expressed skepticism that Warsh would choose to dissent against all 11 other members by voting for a rate cut, despite being appointed as chair by a president who has demanded lower rates. In the news conference, Warsh is expected to acknowledge that economic conditions do not justify rate cuts at this time. Nonetheless, Knightley posited that Warsh might reiterate his view that, over time, tech investment will boost US productivity, leading to faster growth without generating inflation. This scenario would imply a lower neutral interest rate, justifying lower policy rates over the medium to longer term.