• Most investors expect the Fed to hold rates steady at the upcoming meeting, according to a Bank of America survey.
  • 55% of respondents foresee a 'hawkish hold,' signaling higher-for-longer policy.
  • Another 33% expect a 'dovish hold,' leaving room for future cuts.

Hawkish Hold Dominates Investor Sentiment

The Federal Reserve is widely expected to keep the federal funds rate unchanged at its next meeting, but the policy stance is tilting toward higher-for-longer signals, a Bank of America survey of investors conducted June 5–11 shows. The survey found that 55% of respondents anticipate a 'hawkish hold,' with Chair Kevin Warsh signaling that rates will remain elevated for an extended period. Another 33% expect a 'dovish hold,' which would leave the door open for rate cuts later this year.

The split reflects ongoing concerns about inflation persistence, even as some data points to cooling price pressures. The Fed's dot plot and forward guidance will be closely watched for clues on the timing of any easing. A hawkish tilt implies that rate cuts are likely delayed or slower, keeping policy restrictive longer, which could support the dollar and pressure rate-sensitive equities in the near term.

Market Implications and Leadership Dynamics

Market participants are also focused on leadership dynamics at the Fed, with Chair Warsh's approach to balance-sheet policy and forward guidance under scrutiny. Any shift in key voting members could alter rate-path expectations and asset pricing. The survey suggests that investors are bracing for continued volatility around policy communications. Fixed-income markets may see richer term premia if rate-cut expectations are pushed further out, while equities, particularly growth and tech names, could face headwinds from a higher-for-longer stance.

Economic Context and Borrowing Costs

If inflation risks remain sticky, particularly in services, the Fed may maintain a cautious stance despite a cooling headline CPI. This would keep borrowing costs elevated for households and businesses, affecting mortgage rates, auto loans, and corporate investment plans. Savers, however, may benefit from relatively higher short-term rates in the near term. Globally, supply chain normalization and geopolitical risks, such as Middle East developments affecting energy prices, add to the Fed's cautious approach.

Outlook and Data Dependence

The survey underscores that the actual policy path hinges on incoming data. If inflation eases modestly and job growth cools, the Fed may still delay cuts, reinforcing a higher-for-longer trajectory into late 2026. Markets will focus on the next payrolls report and CPI readings for guiding cues. A gradual normalization with rate cuts later in 2026 remains possible if inflation stays under control and growth slows more than expected.

Editor's note: This article is based on a Bank of America survey conducted June 5–11. The Fed has not yet commented on the survey.