- The spotlight shines on central banks led by the Fed.
- Warsh’s vote and view on inflation will be scrutinized.
- Makerfield by-election is a key UK event risk.
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Join BBH's Scott Clemons and Elias Haddad as they unpack the June 17 FOMC decision, the first under Chair Kevin Warsh, and the constraints that could disappoint markets expecting a more dovish Fed tilt.
USD trimmed some of its post-payroll gains last week as optimism over a US-Iran breakthrough sent Brent crude oil prices tumbling to a three-month low. We are sticking to our view that USD can edge higher in the near-term. Resilient US economic activity in both absolute and relative terms outweigh the drag to USD from easing geopolitical fears
This week the spotlight shines on central banks led by the Fed, Bank of Japan (BOJ), Reserve Bank of Australia (RBA), Swiss National Bank (SNB), Riksbank, Norges Bank, and Bank of England (BOE). Policy rate decisions in Brazil, Chile, Czech Republic, Indonesia, Taiwan, and Philippines add to an already packed week.
Fed: Hawkish Hold, Warsh Wildcard
The June 16-17 FOMC meeting will mark Kevin Warsh’s first as Fed chair. That meeting also features an update to the Summary of Economic Projections (SEP). The FOMC is widely expected to keep the target range for the funds rate at 3.50%-3.75% for a fourth straight meeting.
The center of gravity on the FOMC has shifted from an easing to a neutral bias as US labor demand has improved and inflation has moved up. As such, the focus will be on the degree of hawkishness and whether it validates Fed funds futures pricing for a 25bps hike by year end or leans against it. The clearest signal will come from the dot plot, which is expected to shift from implying a 25bps cut in 2026 to a median projection consistent with a 25bps hike.
The other key focus is Fed Chair Warsh. Markets will watch whether he joins the majority in keeping rates on hold or dissents for a cut, becoming the first Fed Chair in history to be outvoted on policy. Just as important will be how he frames communication around the policy outlook, particularly his treatment of the SEP and his characterization of the inflation backdrop.
Warsh does not believe in forward guidance, so expect him to downplay the importance of the SEP and dot plots. Warsh also said he preferred to follow “trimmed averages” inflation as opposed to core PCE. The Dallas Fed trimmed mean PCE and the Cleveland Fed 16% trimmed mean CPI are currently below core PCE, implying room for the Fed to loosen policy.
Bottom line: a hawkish Fed hold should support USD, but Warsh risks spoiling the dollar bull party. Check out our report here to see what a Kevin Warsh-led Fed means for markets beyond this week’s decision.
BOJ: Hikes Resume
The correction in crude oil prices takes some pressure off JPY and could help nudge USD/JPY lower to 155.00. But breaking materially below that level hinges on the BOJ to lean more hawkish. It’s too soon to bet on that because almost all underlying CPI indicators eased further below 2% in April.
The BOJ is widely expected to deliver a 25bps rate increase to 1.00% (Tuesday), ending a hold streak that began after its December rate hike. There is no updated Outlook Report associated with this meeting.
BOJ Governor Kazuo Ueda will be absence at this week’s policy meeting due to hospitalization. BOJ Deputy Governor Ryozo Himino will serve as acting chair while Deputy Governor Shinichi Uchida, will host the post-meeting press conference. Both individuals have consistently voted in line with Ueda, suggesting policy continuity and limited risk of a surprise.
RBA: Pause to Assess Data
The RBA is widely expected to keep the policy rate at 4.35% (Tuesday) after delivering three consecutive 25bps hikes since February. The RBA signaled it is now in a data-dependent pause as it assesses how Australian households and businesses respond to this year’s tightening.
RBA cash rate futures imply 60% odds of one final 25bps hike by year end to 4.60%. We would fade the risk of another hike this year. Real Q1 GDP pointed to sluggish underlying demand activity and the April labor force report was poor. Moreover, business and consumer sentiment indexes are consistent with a softer growth outlook.
Bottom line: Australia-US 2-year bond yield spreads suggests AUD/USD can undershoot 0.7000 in the near-term.
BOE: Hawkish Hold, Political Crosswind
The BOE is widely expected to keep the policy rate at 3.75% for a fourth straight meeting (Thursday). A 7-2 vote split is anticipated, compared with an 8-1 split at the last April 30 meeting. Megan Greene is seen joining Huw Pill in supporting a 25bps hike. There is no updated economic projection associated with this meeting.
A first full 25bps BOE rate rise is priced-in for the November 5 meeting. UK May CPI (Wednesday) could help bring forward the timing of a hike. Headline CPI is expected at 3.0% y/y (BOE projection: 3.3%) vs. 2.8% in April, core CPI is expected at 2.7% y/y vs. 2.5%, and services CPI is expected at 3.7% y/y (BOE projection: 3.9%) vs. 3.2% in April. April labor market data (Thursday) and May retail sales (Friday) will round out the week’s UK economic releases.
BOE rate hikes in a sluggish growth, high inflation environment, is not bullish for GBP but should help cushion the downside. We expect GBP/USD to fall to 1.3100, reflecting a stronger US growth outlook relative to the UK.
The UK political backdrop can amplify a GBP decline, with Thursday’s Makerfield by-election a key event risk. Polls show Andy Burnham leading Reform UK by anywhere from 3 to 12 points, potentially clearing a path for his return to parliament and a leadership challenge to Prime Minister Keir Starmer. A Burnham-led Labour government will likely lead to more spending and borrowing, worsening UK fiscal credibility.
Riksbank: No Rush to Tighten
The Riksbank is widely expected to keep the policy rate at 1.75% for a sixth consecutive meeting (Thursday). We expect the Riksbank to lean against market pricing for a 25bps hike by year-end which is a headwind for SEK.
The updated Riksbank forecast is likely to continue signaling no change in rates through Q4 2026, though it may bring forward the first full 25bps hike to late 2027 from Q1 2028. Sweden’s benign inflation backdrop alongside ample spare capacity in the economy argue for an extended Riksbank hold.
Norges Bank: Holding the Line
The Norges Bank is widely expected to leave the policy rate at 4.25% (Thursday). At its last May 6 meeting, the Norges Bank delivered a surprised 25bps rate hike and left the door open for another hike by year-end because “inflation is too high and has run above target for several years.”
The swaps curve has virtually fully priced in a final 25bps hike to 4.50% by year-end. Persistently high underlying inflation in Norway argues for additional tightening, underpinning a firmer NOK. But easing labor shortages and lower recruitment difficulties suggest capacity pressures are cooling, reducing the urgency for back-to-back rate hikes.
SNB: Stuck at Ground Zero
The SNB is widely expected to keep the policy rate at 0.00% for a fourth consecutive meeting (Thursday). Inflation in Switzerland remains well within the range of price stability of less than 2% per annum. As such, the SNB can afford to keep rates at 0.00% for some time.
Nevertheless, we expect the SNB to modestly revise up its inflation forecast given that headline CPI is tracking 0.1ppt above the bank’s Q2 forecast of 0.5% y/y. This can lead to a modest near-term repricing in rate hike expectations in favor of CHF. The swaps curve price-in 50% odds of a 25bps rate hike to 0.25% in the next twelve months.
Beyond the G10
Chile’s central bank is widely expected to keep the policy rate on hold at 4.50% for a fourth straight meeting (Tuesday). Chile’s central bank estimates the neutral policy rate to be between 3.75-4.75%, with the midpoint of this range at 4.25%.
Banco Central do Bazil (BCB) is widely expected to deliver a third straight 25bps cut to 14.25% (Wednesday). BCB has room to remove policy restrictiveness as the policy rate is well above the bank’s estimate of the neutral rate (8%, or 5% in real terms). Brazil’s strategic exposure to commodities linked to energy, AI, and defense will continue to bode well for BRL. BRL is the top performing major currency so far this year, up over 8% versus USD.
Bank Indonesia (BI) is expected to raise rates 25bps to 5.75% (Thursday). BI delivered an off cycle 25bps hike just over a week ago and surprised markets with a jumbo 50bps hike on May 20 to maintain the stability of the rupiah. In our view, BI rate hikes and ongoing FX intervention will help curtail IDR weakness.
Czech Central Bank (CNB) is expected to raise rates 25bps to 3.75% after holding rates at 3.50% for a year (Thursday). Governor Ales Michl stressed last week “The case for a rate hike has strengthened…A June move is now a live possibility.” Michl pointed out that the Czech economy is facing domestic risks from robust wage increases, as well as persistent growth in prices for services and housing.
Taiwan’s central bank (CBC) is expected to keep the policy rate at 2.00%, marking two years of policy stability (Thursday). We lean towards a 25bps hike or at the very least a hawkish hold which can lift TWD. Taiwan real GDP growth and core CPI inflation are tracking above the CBC’s 2026 projections (7.28% and 1.75%, respectively).
Philippine central bank (BSP) is expected to deliver a second straight 25bps hike to 4.75% (Thursday). A jumbo 50bps hike cannot be ruled out to help curb the slide in PHP and contain the pick-up in inflation. Core inflation surged to a two-and-a-half-year high of 4.1% y/y in May, exceeding the bank’s 4% upper tolerance band.
