Federal Reserve Set To Keep Rates Unchanged Amid Speculation Of June Rate Cut
The US Federal Reserve (Fed) is set to announce its monetary policy decision after its May policy meeting on Wednesday (07/05). Market participants widely anticipate that the US central bank will leave policy settings unchanged for the fourth straight meeting, after cutting rates by 25 basis points (bps) to a range of 4.25%-4.5% in December.
The CME FedWatch Tool shows that investors see little chance of a rate cut in May, while pricing in a 25 bps cut in June of around 30%. Therefore, market participants will be watching for changes in the policy statement and comments from Fed Chair Jerome Powell in his post-meeting press conference for fresh clues on the timing of the next rate cut.
Before the Fed entered the pause period, some policymakers raised concerns about the uncertainty created by the new US trade regime weighing on the labor market.
Minneapolis Fed President Neel Kashkari said that some businesses indicated they were preparing for possible layoffs if the uncertainty persists. Similarly, Fed Governor Christopher Waller told Bloomberg that he would not be surprised to see more layoffs and higher unemployment, adding that rising unemployment could pave the way for a rate cut. When the Bureau of Labor Statistics reported that Nonfarm Payrolls rose by 177,000 in April, beating market expectations of 130,000, and the Unemployment Rate remained unchanged at 4.2%, investors became reluctant to price in a rate cut in June.
Previewing the Fed’s May meeting, analysts at Danske Bank said, “We expect the Fed to keep its monetary policy unchanged at the May meeting, in line with consensus and market pricing.”
“While we expect the Fed to continue cutting rates in June, we doubt Powell will choose a clear path forward amid uncertainty over interest rates. Risks to growth remain tilted to the downside, but rising inflation expectations are still a concern,” the analysts added.
Source: FXStreet
