U.S. FOMC Meeting (May 6-7, 2025)

Fed keeps rates on hold, for now  

• The Federal Reserve Open Market Committee (FOMC) maintained the federal funds rate in the 4.25% to 4.50% range. 
  
• The Fed justified its decision by highlighting that the economy "continued to expand at a solid pace", the labor market "remains solid" and inflation remains "somewhat elevated". 
  
• A key piece of new insight was the Fed noting that uncertainty has increased and it "judges that the risks of higher unemployment and higher inflation have risen".
  
• All the members of the FOMC voted in favor of keeping the fed funds rate unchanged.

Key Implications

• This was a widely expected decision, with the job market and consumer spending remaining healthy. Unfortunately, the data reflect what was, and not what we can expect in the coming months. 
• Our expectation is that the momentum in the economy will start to peter out in the coming months as the cumulative effects of tariffs and uncertainty begin to prop up prices and weigh on the labor market. This puts the summer as the point the Fed will have scope to begin to move the policy rate lower, offering precautionary cuts to support the labor market. That said, uncertainty is the name of the game here. The progress (or lack thereof) on trade negotiations continues to be a key driver for the outlook, potentially adding to inflation pressures and affecting the path of interest rates.     

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