All eyes will be on the US Federal Reserve’s monetary policy announcement today, but Powell’s news conference will be the most attention-grabbing event.
The US Fed’s FOMC meeting will take place on May 6 and 7. On May 7, at 2 p.m. ET, Fed chief Powell is most likely to keep rates unchanged at 4.25%- 4.5% in the May 2025 FOMC meeting.
Top trade official Jamieson Greer and Treasury Secretary Scott Bessent will meet with Chinese counterparts in Switzerland this week to talk about trade and economic matters. Ahead of the Federal Reserve’s policy announcement, which is generally anticipated to hold interest rates constant, the news improved investor optimism.
President Trump has been vocal about Powell on two fronts – One, Trump wants Powell to cut rates, and secondly, he was after Powell’s job. On the latter, Trump recently clarified that he will not be after Powell till his term ends in 2026. Kevin Warsh is most likely to succeed Powell as the next US Fed chief.
Unless the economic situation drastically improves, recent economic data indicates that rate cuts are imminent, most likely starting in June or July.
What is concerning for the markets is the fear of a US recession that could derail the global economies. The markets are building in a recessionary scenario with the expectation of at least four rate cuts in 2025.
Powell has been playing a ‘waiting game’, stating repeatedly that only concrete evidence demonstrating that inflation has been contained will cause the FOMC to drop rates.
The most recent data showed that inflation stayed sticky in March, and the job market held steady in April.
Economic forecasts and surveys indicate potential trouble ahead due to Trump tariffs, with business leaders and individuals fearing increased living costs and potential recession.
The Port of Los Angeles and the Port of Long Beach are the busiest ports in the Western Hemisphere, handling 17% and 14% of US imports and exports, respectively. “Essentially all shipments out of China for major retailers and manufacturers have ceased,” Eugene Seroka, the executive director of the port, said on April 24, as reported by The Atlantic.
US Fed Options
The Fed can either lower interest rates to stimulate borrowing and spending, causing inflation, or raise them to subdue inflation, slowing down the economy and increasing unemployment. A stagnant economy and high inflation would require the Fed to decide which to tackle first.
The Fed is expected to begin cutting interest rates in July due to the weakening economy, but will initially maintain stability to determine the most pressing issue.
Jay Woods, Chief Global Strategist, Freedom Capital Markets says:
While all expectations are for no cut at this meeting, the headlines will come from the tone set by the Fed in their statement and Jerome Powell’s commentary at the subsequent press conference.
When Jerome Powell gets the microphone to discuss economic policy going forward, the market will be intently listening. Does he set a more dovish tone given recent optimistic data in the PCE and unemployment? Will he give concerning comments on the negative quarterly GDP numbers?
Will he have to address – again – that he will serve out his term and address derogatory comments launched at him by the President?
If Powell were to focus on the data then the stage could be set for more dovish rhetoric and a potential cut. If Powell continues to talk about uncertainty due to tariffs and their potential inflationary impact, then the thought of cuts could remain just a hope and not a potential reality.