Fed Chair Jerome Powell and his colleagues are set to leave interest rates unchanged amid “unusual uncertainty” about tariffs and their impact, potentially causing a stir in markets.
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Investors want hints of a cut in June
When will the Federal Reserve (Fed) cut interest rates? It is unlikely to happen in its May decision, but investors will follow each word in the bank’s statement and every twist to the message from Fed Chair Jerome Powell. It may be insufficient to keep them calm.
The Fed and the markets do not know where President Donald Trump’s tariff policy will end up. Negotiations with over a dozen countries are ongoing, and to some countries, it remains unclear what Washington wants. It is also unclear how duties will impact the economy: only push prices temporarily higher or have a lasting impact. Will growth only slow or is a recession looming?
The Fed would hike rates to curb inflation and cut them to lower unemployment, but it cannot make a call just yet. Fed Chair Powell will likely signal more data is needed before making a decision in June. Bond markets see roughly a 30% chance of a cut next month, and closing the door these hopes would boost the US Dollar. Conversely, indicating such a decision is on the cards would boost Stocks and Gold.
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