Fed 'dot plot' to remain unchanged as businesses absorb tariff costs

The long awaited May inflation report out of the US showed no impact at all from Trump's tariffs, and was in fact much lower than anyone had expected. The core subindex increased just 0.1% MoM, vs. expectations of +0.3%, a huge miss of a rarely seen size. Weekly jobless claims continue to inch upwards, contradicting the April payrolls report.

Evidence is still very mixed, but on balance it seems to confirm that demand is slowing down, the labour market is loosening, and corporations are absorbing tariff costs rather than raising prices.

The June Federal Reserve meeting this week will be interesting primarily to gauge the extent to which this data has impacted the FOMCs views on inflation, growth and potential interest rate cuts, of which two full ones are priced for this year by markets.

As usual, the main focus for market participants will be on the bank’s updated ‘dot plot’. With inflation risks still prevalent, we may not see any change to the 2025 median dot, although one or two members may downgrade their view in favour of more aggressive cuts.