US Interest Rate Decision Prep

On Wednesday the 7th of May, at 14:00 ET, the Federal Reserve concludes it’s latest Interest Rate decision meeting, and releases the latest rate statement.
Here are some views on what to expect.

General Expectations
Markets and median analyst expectations expect the FOMC to keep rates unchanged at 4.5%.
In the unlikely event that rates are cut, we would expect a large amount of strength in US stocks, and weakness in the dollar and government bond yields, as pricing in for the expected rate cut is undone and reversed.
But If the hold is realized, attention will turn to the rate statement.

If the rate statement is more hawkish (underlines uncertainty about the strength of the jobs market and inflation return to target), this could indicate to the markets that the pace of rate cuts may slow down, which would be likely to cause weakness in US stocks, and strength in the dollar.
If the rate statement is more dovish (underlines increased confidence in inflation return to target, and satisfaction in the strength of the jobs market) this could confirm that the Fed can go ahead with further rate cuts, which would be likely to strengthen US stocks and weaken the dollar and government bond yields.

Commentary
Société Générale
The FOMC meeting is a key focus this week. We do not anticipate significant changes in the Fed’s messaging compared to the March meeting.
While growth expectations may have declined due to increased tariffs, economic growth and consumer spending are on the rise.
Overall, risks remain high, with potential downside for growth and upside for inflation.

Wells Fargo
Expectations are nearly universal that the Fed will keep its policy rate unchanged at the May meeting. Although GDP came in soft in Q1, the underlying data do not signify a lull in economic activity.
Job growth is steady, business investment sturdy and strong income growth continues to propel consumer spending. That said, plenty of “soft” indicators are trending in worrisome directions.
Stock market indices are lower and corporate bond spreads wider than when the FOMC last met in March.
Consumer surveys reveal mounting economic anxiety, while surveys of businesses point to rising input cost pressures and a hesitancy to invest.
With tariff policy still evolving, recent public comments place FOMC members squarely in “wait-and-see” mode while economic developments unfold.

By simultaneously stoking higher prices and higher unemployment, tariffs nudge each side of the Fed’s dual mandate further away from its goal.
Our attention will be highly attuned to next week’s post-meeting press conference for insight into how the Committee is thinking about the balance of risks.
Our hunch is, once tariffs do start to influence hard economic data, the hit to US economic growth and the labor market will induce the FOMC to lower rates even in the face of higher inflation. We currently look for the first 25 bps rate cut to occur in June with a total of 125 bps of easing penciled in for this year.
That said, the possibility that levies will be reduced following new trade deals or product-specific carve-outs skew risks toward later/less easing.

Unicredit
The FOMC is expected to keep its target range for the federal funds rate at 4.25–4.50% at the end of its two-day meeting on 7 May, in line with market expectations.
Since the March meeting, the Trump administration introduced significantly higher “reciprocal” tariffs on 2 April, with some tariffs paused for 90 days, and retaliatory tariffs on China have risen to 145%.
While there was an initial sell-off in financial markets and tightening of conditions, this has eased somewhat, though consumer and business sentiment has weakened.
Limited data for April, such as low initial jobless claims, suggest the economy has not deteriorated drastically.
Core PCE inflation for March is expected to be benign at 0.1% month-over-month, but inflation expectations have surged, particularly with the rise in the ISM manufacturing price index.
The Fed is likely to face a conflict between its dual mandates of 2% inflation and maximum employment.
However, it has indicated that monetary policy will be based on how far the economy is from each goal, and for how long. If a recession does not occur, the Fed will likely prioritize its price-stability goal, with just one rate cut expected in the fourth quarter of 2025.

Previous Release
On March 19th at 14:00 ET, the Fed left rates unchanged, as expected.
They also released the rate statement, and more importantly, the latest Summary of Economic projections.

The Federal Reserve’s Summary of Economic Projections, indicated a cautious economic outlook.
The median projection for US real GDP growth is 1.7% in 2025, down from 2.1% in December 2024, with a slight increase to 1.8% in 2026 and 2027.
The unemployment rate was expected to be 4.4% at the end of 2025, decreasing to 4.3% in the following two years.
Core PCE inflation was projected to rise to 2.8% in 2025, up from 2.5% previously, and to remain at 2.2% in 2026 and 2.0% in 2027.
The median federal funds rate was anticipated to be 3.9% at the end of 2025, 3.4% in 2026, and 3.1% in 2027, with a longer-run neutral rate of 3.0%.

Despite the projected economic slowdown, the Fed’s dot plot suggests two rate cuts in 2025, totaling 50 basis points, followed by another 50 basis points in 2026 and 25 basis points in 2027. However, some Fed officials have expressed concerns about future inflation, indicating a cautious approach to monetary policy adjustments.