US Federal Reserve Chair Jerome Powell will speak on April 16, 2025 at the Chicago Economic Club in Chicago, Illinois.
Kamil Kruzachinsky | AFP | Getty Images
The Federal Reserve will head towards closely monitored policy decisions on Wednesday, leading to a strong incentive to do nothing at all.
Faced with unresolved questions about President Donald Trump’s tariffs and the economy that show both key advantages and disadvantages, central bank policymakers can do little for now, except to sit and wait as events unfold.
“It’s going to be awkward at this meeting. The Fed has no predictions to communicate anything about the next few meetings,” said Vincent Reinhart, a former Fed official and now Chief Economist at BNY Investments. “The Fed has to wait two things: make sure the policy is actually in place… but when it is demonstrated, we need to see how inflation expectations respond.
In fact, according to CME Group’s FedWatch gauge, futures market prices are only about a third of the chances of travel during the June 17-18 session, with few chances of interest rate reductions at this week’s meeting.
Market expectations have changed over the past week, both in response to a mix of economic cues and indications that President Donald Trump is at least a bit offensive with his tariff approach. The White House shows that some trade deals are nearing completion, but it has not yet been announced.
Reinhart said his company has two cuts plugged in this year, a bit tighter than the market expects three cuts from July. A week ago, the market had bet on as many as four cuts since June.
Direction from Powell
Fed Chairman Jerome Powell will be left at his post-meeting press conference to explain his thoughts about where he and his colleagues are looking at policy headlines.
“The other thing I’m unhappy about is that I don’t know what they’ll do in June,” Reinhart said. “So he’s going to have to say it’s all on the table. He’s always saying that, but this time he’s going to have to mean that.”
But Powell will certainly face questions about how policymakers view the recent barrage of data. It depicts an economy filled with pessimism from consumers and executives who have not yet fed hard numbers such as consumers and employment.
Gross domestic product fell at an annual rate of 0.3% in the first quarter, but was primarily a product of a surge in imports ahead of Trump’s April 2nd tariff announcement. The non-farm salary report in April showed that employment continued at a steady pace, with the economy adding 177,000 jobs, exceeding expectations for the month.
At the same time, the manufacturing and services sector surveys show deep concern about the impact of inflation and supply from tariffs. Also, consumer optimism is multi-year lows, and inflation expectations are decades highs.
That all leads to a tightrope walk for Powell and Co. to walk at the June meeting at least.
There is no “dot plot” this time
“We’re committed to providing a new approach to the development of our commitment to achieving our commitment,” said Tony Rodriguez, head of Nuveen’s bond strategy. “There’s too much uncertainty to act now, but be prepared to act if you start to see weakness in the job market.”
Nuveen is hoping for two cuts this year and two next year as the Fed navigates growth and rising tariff-fueled prices.
“Our hope is to see nothing at this meeting,” Rodriguez said. “They need to look at more hard data, but I don’t think they’ll really be clear until they call in June or July. I think the September meeting is the first cut.”
The Fed at this meeting will not update its economic forecasts or “dot plots” of individual members’ expectations for interest rates. It will come in June. Therefore, the rate setting federal open market committee will be left to coordinate post-meeting statements and Powell’s press conferences, removing its collective thinking hints.
“We think it will take several months for evidence of hard data to accumulate enough to claim the cut,” Goldman Sachs economist David Merriel said in a memo. Goldman hopes the Fed will cut back in July, September and October to avoid economic debilitating.
One wildcard in the equation: Trump has been urging the Fed to cut fees as an inflationary edge close to the central bank’s 2% target, as he did during his first term.
However, BNY economist Reinhart has not seen the Fed’s bend to Trump’s will nor break the rank, despite public statements from some members indicating the department on policy.
“The White House has given Jay Powell a favor to bring the committee together because generally, when families are being criticized from outside, it’s not that motivated to criticize each other,” Reinhart said. “Are you going to criticize Jay Powell now and line up the president? Maybe if you’ve worked in the Federal Reserve for the rest of your life, it’s probably not.”
