Support
Fed to hold steady in May, markets eye Powell’s tone for June rate clues
The Federal Reserve is expected to leave rates unchanged this week, but investors will closely watch Powell’s remarks for signals about a possible rate cut in June amid persistent inflation and rising trade-related uncertainty.
The Fed is set to hold interest rates at 4.25%-4.50% for the third consecutive meeting.
Market focus turns to Powell’s press conference for guidance on future rate moves.
June rate cut odds stand near 30% as labor data stays strong and trade uncertainty grows.
The Federal Reserve is widely expected to keep interest rates on hold at the conclusion of its two-day policy meeting on Wednesday, extending its pause for a third consecutive meeting. With the federal funds target range currently at 4.25%–4.50%, no change is fully priced in for the May decision, according to the CME FedWatch Tool.
However, market participants are not treating this meeting as a non-event. Instead, the spotlight is firmly on Chair Jerome Powell’s post-meeting press conference, where traders hope to gain insight into whether the Fed is still on track for a rate cut in June — or if sticky inflation and geopolitical uncertainty will delay easing further.
Focus on Powell’s tone as labor data tempers cut expectations
Recent economic releases have cast doubt on near-term rate cuts. April’s Nonfarm Payrolls report showed job creation rising by 177,000 — far above the 130,000 consensus — while the unemployment rate held steady at 4.2%. Such figures suggest continued labor market strength, reducing urgency for immediate Fed action.
Before entering its blackout period, several Fed officials hinted at rising downside risks. Minneapolis Fed President Neel Kashkari warned that businesses are preparing for potential job cuts if trade uncertainty persists. Meanwhile, Governor Christopher Waller stated he would not be surprised to see unemployment tick higher and viewed this as a precondition for eventual rate cuts.
Inflation and tariffs complicate the path forward
The bigger challenge for the Fed remains navigating the dual threat of slowing growth and lingering inflation pressures. Although headline inflation has cooled from last year’s highs, expectations have remained sticky — particularly with the US entering a volatile phase of its new reciprocal tariff policy.
Policymakers are unlikely to offer explicit forward guidance in this environment. Instead, Powell may emphasize the importance of data dependence, reiterating the Fed’s willingness to respond flexibly to incoming data on jobs, inflation, and global conditions.
At the margin, any shift in Powell’s rhetoric — even subtle — could sway expectations for the June meeting. A focus on inflation risks may strengthen the US Dollar, while more emphasis on downside growth risks or trade-related headwinds could rekindle bets on summer easing.
For now, the Fed walks a fine line. It wants to keep inflation expectations anchored while not ignoring signs of weakness brewing beneath the surface. Markets will be listening closely to Powell’s balance — or lack thereof.
Yet so far, data has not confirmed a sharp deterioration in labor conditions. That has kept the probability of a June cut relatively muted at around 30%, with some investors pushing expectations further into the second half of 2025.
