The Federal Open Market Committee is not expected to adjust short-term interest rates on May 7. Fixed income markets project that a cut in interest rates is unlikely, expecting rates to remain at the current 4.25% to 4.5% range according to the CME FedWatch Tool. Similarly projection markets Kalshi and Polymarket give roughly a 9 in 10 chance that rates are held steady. However, a cut in June appears probable.
Recent speeches from FOMC officials in May have signaled that it may be too early to cut interest rates in the context of high economic uncertainty and ahead of economic data that will provide a clearer picture on the impact of tariffs and other economic forces on the U.S. economy. However, there are still policymaker comments to come before the FOMC’s blackout period begins ahead of the May 6-7 meeting on April 26.
Recent Fed Speeches Suggest Waiting For More Data
Federal Reserve Chair Jerome Powell said on April 16 that, “For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.” Aside from unexpected economic data in the coming weeks, that appears a relatively clear indication from Powell that the FOMC may not adjust rates in May.
Federal Reserve Governor Christopher Waller said on April 14, “Let me conclude with two essential points. The first is that the new tariff policy is one of the biggest shocks to affect the U.S. economy in many decades. The second is that the future of that policy, as well as its possible effects, is still highly uncertain. This makes the outlook also highly uncertain and demands that policymakers remain flexible in considering the wide range of outcomes.”
Both comments imply that the FOMC may want more data on the impact of tariffs and other factors before adjusting interest rates. As such, unless decisive economic data arrives before May 6, the FOMC may wait before moving interest rates in order to obtain more data to ground its analysis.
Recent Economic Data
Recent economic news has contrasted extremely pessimistic soft data against reported data that has generally remained robust. Soft data includes negative consumer and business surveys as well as assessments of a likely economic slowdown from economic forecasters based on the impacts of tariffs.
Conversely, the economy has continued to add jobs in March and Consumer Price Index inflation fell 0.1% month-on-month for March. The jobs report for April will be reported on May 2 and the CPI report will be reported on May 13. However, it may be the economic reports for May, reported in June, that provide more meaningful assessment of the impact of tariffs.
What To Expect
It appears unlikely that FOMC policymakers will get the economic clarity they are looking for to adjust interest rates before May 7. That’s why fixed income markets and projection markets expect rates will most likely be held steady. Nonetheless, interest rates are still expected to fall in 2025 with the first cut perhaps coming in June.
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