Policy Regime & Directional Outlook:

• Policy Regime: The Federal Reserve has transitioned into a regime of cautious neutrality, characterised by a "wait-and-see" hold to protect against asymmetric inflation risks. (1)
• Near-Term Bias: HOLD with 90% qualitative confidence for the June meeting, following a hawkish pivot in committee rhetoric. (1)(2)
• Medium-Term Bias: Hawkish hold; policy is likely to remain restrictive for longer as the committee seeks to remove previous easing guidance. (2)(3)
• Key Constraint: Sticky core inflation dynamics and geopolitical shocks to energy prices represent the dominant constraints on further accommodation. (4)

Policy Justification:

• Macro Conditions: While growth remains resilient, sticky Core PCE at 2.83% and expansionary liquidity conditions prevent a decisive shift toward easing. (4)
• Fed Worldview (Projections): SEP revisions have raised 2026 inflation forecasts to 2.7%, signaling that the path to the 2% target has stalled and requiring a higher policy floor. (5)
• Behavioural Feasibility: Recent communications suggest a high likelihood of a formal shift in guidance to remove the "easing bias" and restore two-sided optionality. (6)(2)
• Real-Economy Signal: District-level evidence confirms that firms are in a "holding pattern" due to energy cost spikes and geopolitical uncertainty. (7)

Interpretation:

• Upcoming meetings should be interpreted through the lens of guidance recalibration; the primary objective is to uncouple policy from the expectation of imminent cuts. (1) A removal of the "easing bias" would confirm this regime, while a significant break in labour market stability would be the only signal likely to invalidate it. (6)