Will Today’s Fed Meeting Trigger an Interest Rate Cut?

Are we about to see a surprise interest rate cut from today's Federal Reserve (Fed) meeting? The short answer is highly unlikely. While the market always holds a sliver of hope for a dovish surprise, expectations are overwhelmingly for the Fed to hold steady on interest rates this time around. The focus is not on whether rates will change, but on what Fed Chair Jerome Powell says about the economy's current state and its future trajectory, especially in light of President Trump's recent tariff policies.

Will Today's Fed Meeting Trigger an Interest Rate Cut? A Deep Dive

Why the Focus Isn't on a Rate Cut (Yet)

Frankly, the Fed is in a bind. On one hand, you have a relatively healthy labor market with unemployment hovering around 4.2%. On the other, the shadow of Trump's tariffs looms large, threatening to disrupt global trade and potentially trigger both higher inflation and slower economic growth. It's a recipe for uncertainty, and the Fed hates uncertainty.

Here's a breakdown of the key reasons why a rate cut is improbable today:

• The “Wait-and-See” Approach: Remember, central bankers like to proceed with caution. We're in a period where the full effects of the tariffs are still unknown. As Erik Weisman, chief economist at MFS Investment Management, rightly points out, the chaos of U.S. tariff policy makes it exceedingly difficult to predict the macroeconomic future. The Fed will likely want to assess the situation further before making any drastic moves.
• Solid Employment Numbers: The Fed has a dual mandate: price stability (controlling inflation) and maximum employment. With unemployment still relatively low, the pressure to cut rates to stimulate job growth is less intense.
• Inflationary Pressures: While the economy might be slowing down, tariffs can also lead to higher prices as imported goods become more expensive. Cutting rates to counter economic weakness could fuel inflation even further, putting the Fed in a difficult spot.

What Should You Be Watching For?

Since a rate cut is unlikely, all eyes will be on Jerome Powell's press conference following the meeting. Here's what I'll be listening for:

• Powell's Tone: Is he cautiously optimistic, or does he sound more concerned about the potential impact of tariffs? Body language, pauses, and even the choice of words can provide clues.
• Inflation vs. Growth: Pay attention to how much time Powell spends addressing inflation versus economic growth. John Ingram, CIO and partner at Crestwood Advisors, makes a great point. If Powell dedicates more time to discussing slowing growth, it could signal a future rate cut is more likely. Conversely, if inflation is the dominant theme, the Fed might remain hawkish.
• Guidance on Future Policy: Does Powell hint at any specific triggers that would prompt a rate cut or a rate hike? The Fed will be updating their economic projections next month, so they will want to set the stage for that.
• Stagflation Concerns: Will Powell address any concerns about stagflation?
• Tariff Impact Assessment: How exactly does the Fed see the current tariff situation impacting businesses? Does the uncertainty surrounding them inflict lasting economic damage?

The Trump Factor: A Wild Card in the Deck

It's impossible to discuss the Fed without acknowledging the elephant in the room: President Trump. His aggressive trade policies and his vocal criticism of the Fed add another layer of complexity to the situation.

• Political Pressure: Trump has repeatedly called for lower interest rates, even going so far as to publicly criticize Powell. While the Fed insists on its independence, political pressure can still influence its decisions.
• Tariff Uncertainty: The unpredictability of Trump's trade policies makes it difficult for the Fed to formulate a clear strategy. It's like trying to navigate a ship through a storm with constantly changing winds.
• Stagflation Fears: As CNN pointed out, the March forecast pointed to slower growth combined with higher inflation.

Remember that Treasury Secretary Bessent is meeting with Chinese officials this weekend in Switzerland for a potential thawing in trade war tensions. The impact of any such detente could have a significant impact on the Fed's decision-making going forward.

What the Experts are Saying

To give you a broader picture, here are some quotes from experts that highlight the current sentiment:

• Emily Bowersock Hill, CEO and founding partner at Bowersock Capital Partners: “The Federal Reserve is unlikely to lower rates this week or to act decisively until after July 8, when the 90-day tariff pause ends.”
• Krishna Guha, vice chairman at Evercore ISI: “The Fed will keep rates on hold at its May meeting and signal it remains in wait-and-see mode for the time being.”
• Brett Bernstein, CEO and co-founder of XML Financial Group: “I don’t know that the Fed necessarily has enough data to say anything other than, ‘we’re just cautiously watching things’.”
• Kevin Gordon, senior investment strategist at Charles Schwab: “It’s hard for the Fed and for the Fed staffers to do scenario analysis when the number of scenarios is basically infinity when it comes to tariffs.”
• Thierry Wizman, global FX & rates strategist at Macquarie: “The [Fed] to dissuade traders from automatically assuming that aggressive rate cuts are ahead.”
• Terry Sandven, chief equity strategist at US Bank Wealth Management Group: “Tariffs and the risks of ongoing economic weakness are weighing on sentiment and equity prices.”

A Look at the Numbers

While expert opinions are valuable, let's also consider what the market is pricing in:

• Rate Cut Probabilities: Wall Street sees a 31% chance that the Fed will deliver a rate cut in June, with those odds getting better later in the year. It's important to remember that these are just probabilities, and the situation can change quickly.
• Market Performance: The S&P 500 recovered its losses since April 2 when Trump announced his tariffs, but slipped back below that level this week.
• Treasury Yields: The yield on the 10-year Treasury note has edged higher to 4.316%. This is another data point to consider when determining whether the market expects any change in rates anytime soon.

My Personal Take: Patience is Key

In my opinion, the Fed is right to proceed with caution. Rushing into a rate cut based on incomplete data or political pressure could backfire. It's better to wait, assess the full impact of the tariffs, and then make a data-driven decision. I believe that Powell will try to thread the needle, reassuring the markets that the Fed is vigilant without signaling any immediate policy changes.

That doesn't mean that a rate cut is completely off the table for the rest of the year. If the economy weakens significantly or if inflation remains stubbornly low, the Fed may be forced to act. But for today, at least, I expect a status quo announcement and a lot of careful wording from Chair Powell.

The Bottom Line

Don't hold your breath for a rate cut today. The Fed is in a holding pattern, waiting for more clarity on the economic impact of tariffs. The real action will be in Powell's press conference, where he'll try to reassure the markets without committing to any specific course of action. Buckle up, because the next few months are likely to be bumpy ride for the economy.