The biggest suspense of next week's Federal Reserve meeting: Will Waller bow to Trump or lean towards raising interest rates?

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The new Federal Reserve Chair, Kevin Warsh, is about to preside over his first policy meeting since taking office. The market’s core question: in the face of the increasingly hawkish atmosphere within the Fed, can this new chairman—who has publicly advocated rate cuts—carve out his own policy path between inflationary pressures and White House preferences?

The Federal Reserve will hold its rate-setting meeting from June 16 to 17, and is expected to keep rates unchanged. However, the policy signals from this meeting are highly significant. Over the past eight weeks, Fed officials have reached consensus on concerns about rising inflation. Friday's robust May jobs report further supported this view. Economists point out that the surge in energy prices prompted by the Iran conflict is manifesting more on the inflation front rather than on growth, reshaping the Fed’s policy considerations.

Michael Gapen, chief U.S. economist at Morgan Stanley, said, "One of the key outcomes of the meeting will be how much Warsh aligns with hawkish views." Analysts will focus on three aspects: whether the policy statement removes the “easing bias” language, whether the dot plot shows expectations for rate hikes, and whether the risk distribution skews more toward inflation. If all these signals appear together, it would mark a major shift in the Fed’s easing cycle since late summer of 2024.

Fed officials are now in a blackout period and cannot make public statements before the meeting. After the statement is released on June 17, Warsh will host his first post-meeting press conference as chair. The market is also keenly awaiting clear signals about reforms to the Fed’s communication mechanism—a key campaign promise when Warsh ran for chair.

Three Major Rate Hike Signals: How the Meeting Will Pave the Way for a Policy Shift

Economists list three key indicators to judge whether the Fed is laying the groundwork for a rate hike.

Removal of the "easing bias" is the most closely watched signal.

This phrase was added to the policy statement in December last year, when the Fed had just completed three consecutive rate cuts, bringing the benchmark rate range down to 3.5%–3.75%. Former Cleveland Fed President Loretta Mester said in an interview that retaining this phrase is a "gift" for Warsh, and removing it is a "fairly straightforward and relatively painless" way to show the market that Warsh will be data-driven in policy, as well as dispel the market's impression that he only caters to Trump’s preference for rate cuts. "I think there are still outside concerns that he might just be inclined to lower rates because of the administration’s wishes," Mester said.

A shift in the dot plot is the second observation point.

Matthew Luzzetti, chief U.S. economist at Deutsche Bank, said the new dot plot could show more officials expecting rate hikes rather than cuts, forming a sharp contrast to this March—when no one marked any rate hike expectations; among 19 officials, only 7 expected a single rate cut this year, 7 favored no change, and the other 5 expected two or more cuts.

Changes in the risk distribution chart are the third dimension.

Michael Gapen noted that the Fed’s risk chart could show surging concerns about inflation, with worries over the labor market fading. This would provide theoretical grounds for a policy shift toward rate hikes. Mester said there is a considerable chance the Fed will raise rates this year, possibly as early as late summer, which would be the first hike since July 2023. She said a hike would help curb overheated demand fueled by energy bottlenecks due to the Iran war and robust corporate AI spending.

Communication Reform: Radical Overhaul or Gradual Change?

Previously, Warsh had promised a "policy framework reform" and criticized Fed officials for being too eager to make public comments. The market expects him to use his first post-meeting press conference to lay out his vision for reform, but analysts are divided on how drastic those changes will be.

Ellen Meade, associate professor of economics at Duke University, believes Warsh will signal the Fed is entering a "new era" in his first press conference. "He wants to demonstrate he’s here to break from precedent, and communication is an area where he can make relatively quick progress," she said. Possible moves include not submitting personal economic projections (i.e., not participating in compiling the dot plot), and dramatically shortening press conference durations from the approximately 45 minutes under former chair Powell.

Mester takes a more cautious view. She believes Warsh won’t rush to make sweeping changes, but will prioritize building trust with colleagues and the public. She expects Warsh may use his first press conference to announce the creation of several special committees, starting work on his two main priorities: reducing the balance sheet and overhauling Fed communication mechanisms. "He’s an outstanding communicator and fully capable of handling the job," Mester said.

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