The Federal Open Market Committee (FOMC) is expected to stabilize short-term interest rates at its May 7 meeting as policymakers are cautious amid continuing economic uncertainty and await critical data release.
Market indicators strongly point to a suspension of interest rate changes. The bond market predicts federal funding rates will remain in the current 4.25% to 4.5% range, according to the CME FedWatch tool. Kalshi and Polymarket in the forecast market reflect similar sentiments, giving the FOMC a roughly 90% chance of holding the rate consistently in May. However, interest rate cuts in June are likely to be increasingly likely.
Fed Chairman Jerome Powell signaled the patient’s approach in a speech on April 16, saying, “We are now waiting for more clarity before we consider adjusting to policy stance.”
Fed Chairman Jerome Powell signaled the patient’s approach in a speech on April 16, saying, “We now reflect Christopher Waller’s comments on Automatt, who described the new tariff policy as “one of the biggest shocks that have impacted the US economy for decades.”
As policymakers continue to assess the economic situation, the Fed will enter a period of power outages for advance communications on April 26th. Public comments must be made prior to that day.
The decision to delay policy adjustments is made to complicate the outlook for mixed economic signals. Soft data, including consumer and business sentiment surveys, noted growing concerns about slowing the economy, but the hard data was relatively solid. The US labor market continued to add jobs in March, and consumer price index (CPI) inflation fell 0.1% m/m over the same period.
Future economic data, including the April employment report through May 2nd and the consumer price index report through May 13th, will be important in shaping the Fed’s next move. However, it may be economic data for May, scheduled for June, that is a clearer view of the impact of recent tariffs and global economic changes.
Citigroup revised its forecast accordingly, estimating delays from May in hopes of the next rate cut in June, maintaining its prospects for a total of 125 basis points reductions through 2025.
*This is not investment advice.
