The Federal Open Market Committee (FOMC) is anticipated to keep interest rates unchanged at its meeting on May 7, as inflation remains “somewhat elevated” and the job market remains “solid,” according to the FOMC’s March statement. The Fed has shown caution in making further rate cuts due to the current economic conditions, yet there remains significant uncertainty, with surveys becoming more pessimistic due to factors like tariffs. While markets and policymakers predict interest rate reductions later in 2025, the timing and extent of these cuts are still uncertain.
The FOMC’s next scheduled meeting is set for May 6-7, where the committee will announce its decision on interest rates. Although the Fed can adjust rates outside of these meetings in response to extreme events, it typically follows a set calendar with eight meetings each year. The May meeting will be the third of 2025, with interest rates remaining steady since the previous meetings in January and March, following rate cuts in 2024.
Federal Reserve Chair Jerome Powell is expected to hold a press conference on May 7, but no major updates to policymakers’ economic projections are expected until the June meeting. As of March, the consensus within the FOMC is for two rate cuts in 2025, though some members anticipate fewer reductions. This contrasts with the more dovish outlook of fixed income markets, which, according to the CME FedWatch Tool, suggest anywhere from one to five rate cuts due to concerns over a potential economic slowdown.
Upcoming economic data will be closely scrutinized, especially as tariffs, government job cuts, and other policy measures begin to show their broader economic impacts. The Consumer Price Index (CPI) for March, due on April 10, is expected to show flat headline inflation, with core inflation possibly remaining elevated. The March jobs report, due on April 4, will also be pivotal. While employment data has remained strong, job openings are trending down, suggesting a potential softening in the labor market. Despite some pessimism reflected in survey data, the overall economic reports have not indicated significant weakness thus far.
The FOMC’s March projections forecast slightly higher inflation, slower economic growth, and a marginally higher unemployment rate in 2025 compared to previous projections from December. As the committee continues to evaluate the economic landscape, it appears unlikely that the FOMC will cut interest rates in May, especially with strong job reports.
Nonetheless, the May statement and press conference will be key to understanding the Fed’s plans moving forward, with markets expecting a potential rate cut at the following meeting on June 18. The May decision and accompanying commentary will be critical in confirming or altering this expectation.
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