Overview
As the Federal Reserve kicks off its policy meeting this week, most economists and market watchers predict no change to interest rates — even amid growing public demands from former President Donald Trump to reduce them.
Key Developments
The Federal Open Market Committee (FOMC), responsible for setting U.S. interest rates, is meeting this Tuesday and Wednesday, with their decision expected by 2 p.m. ET on Wednesday. Fed Chair Jerome Powell will address the media shortly after, at 2:30 p.m.
Market forecasts overwhelmingly suggest the Fed will maintain its benchmark rate within the current range of 4.25% to 4.5%, where it has remained since late last year. According to CME Group’s FedWatch Tool, traders see a 97% probability of no change, and only a slim 3% chance of a small 0.25% rate cut.
Top analysts at major banks like J.P. Morgan, Goldman Sachs, and Bank of America also expect no movement on rates during this session. Bank of America economists, led by Aditya Bhave, called this month's gathering "a placeholder" in their note to clients.
Political Backdrop
While no surprises are expected from the Fed this week, political tension has been simmering. Donald Trump, during the early phase of his second presidential term, has stepped up his criticism of Powell, branding him with colorful insults like "Mr. Too Late" and "a major loser." Reports suggest Trump even considered removing Powell — an action of questionable legality — though he appears to have backed down for now. It’s worth noting that Powell was first appointed to his role by Trump back in 2017.
Looking Ahead
Observers are watching closely to see how Powell responds to Trump’s attacks. Although Powell has stated that the president cannot legally oust him before his term ends in 2026, he’s been careful not to directly comment on Trump’s recent remarks. J.P. Morgan’s chief U.S. economist, Michael Feroli, anticipates Powell will dodge those questions, choosing instead to focus on the Fed’s policy goals.
Background Context
The Fed’s interest rate decisions influence everything from corporate loans to consumer borrowing costs. By raising rates, the Fed cools down economic growth and inflation; lowering rates does the opposite, encouraging spending and investment. Over the past few years, controlling inflation has been the Fed's main priority, especially after prices surged to 40-year highs in 2022. Though inflation has slowed — dropping to 2.8% in March — it remains above the Fed’s 2% target. Meanwhile, the labor market has stayed resilient, with 177,000 new jobs added last month and unemployment steady at 4.2%.
What Could Trigger Rate Cuts?
Despite the expected pause this week, many experts believe rate cuts are still on the table later this year. According to Feroli, Powell and the Fed are in a “wait-and-see” mode, holding off on changes until there’s more clarity. Traders currently see almost certain odds (99.6%) of a rate reduction before the year ends.
Goldman Sachs’ top economist David Mericle suggests that even persistent inflation might not stop the Fed from cutting rates if economic shocks — like tariffs — start to strain the economy. Signs that could prompt action include rising unemployment, weak hiring, and declining business investment. Goldman predicts the Fed will trim rates by 25 basis points at each of its meetings in July, September, and October, potentially lowering the target range to 3.5%–3.75% by fall.
