- Given an increased uncertainty in the economic outlook, the Federal Reserve has decided to hold the interest rate steady at 4.5% until July. This signaled a continued “wait and see” approach that will offer more time for things to play out, particularly in the tariff.
- The market continues to price in three rate cuts this year, starting in July, according to the CME FEDWatch Tool.
- Potential two-sided risk: higher unemployment rate and higher inflation rate from the tariff impact → if both come, then it would likely lead to a stagflation scenario.
- At this point, the FED has two choices: either hold to combat inflation or cut to stimulate economic growth.
- As per Simon White, Markets Live macro strategist, “The Fed may be forced to cut rates this year if tariffs cause a recession.”
- Powell also cited that “We won’t make progress on goals this year if tariffs stay,” stressing the trade agreement with other nations.
- Even if President Trump has been publicly urging the Fed to lower interest rates, Fed Chair Powell stated that these calls have no influence on the Fed’s decision-making process, which is solely based on economic data, the outlook, and the balance of risks.
Market Reaction:
Other Important News:
- Trump also announced earlier this morning that there will be a big trade and tax bill announcement tomorrow at 10 AM there (which might be around 9-11 PM in Cambodia)
- Even though Trump mentioned the potential for lower trade negotiations with China, this does not mean that he’s willing to pull back the 145% tariff completely before something settles yet. Even US CEA’s Miran also stated that, “Trump has said there may be disruptions from trade.”
- Trump is also hinting at the possible Middle East (could possibly refer to Gaza) ceasefire, which might or might not happen in 24 hours.
