Until April 2025, there is no official decision from the Federal Reserve (Fed) regarding interest rates for May 2025, as decisions are made at each meeting of the Federal Open Market Committee (FOMC), and the next scheduled meeting after April is on May 6 and 7, 2025. However, I can give you an overview based on the information available as of today, April 7, 2025, and the current expectations of the market and analysts. Current Context In its last meeting on March 18-19, 2025, the Fed kept interest rates in the range of 4.25%-4.50%, a decision that extended the pause initiated in January after a total of 100 basis points cut in 2024 (50 in September, 25 in November, and 25 in December). According to the official statement and economic projections from March:
The Fed expects two rate cuts of 25 basis points in 2025, which would bring the range to 3.75%-4.00% by year-end.
They project slower GDP growth (1.7% in 2025, down from 2.1%) and higher inflation (2.8% in core PCE terms, compared to the previous 2.5%), influenced by the tariffs from the Trump administration.
They also reduced their quantitative tightening (QT) program, lowering the limit on Treasury bond maturities from $25 billion to $5 billion monthly starting in April.
The Fed Chairman, Jerome Powell, emphasized in March that economic uncertainty is 'unusually high' due to Trump’s policies, especially the tariffs (25% on Canada and Mexico, 20% additional on China), which could delay progress toward the 2% inflation target.
Expectations for May
There is no concrete data on the May decision, but expectations are based on projections, statements, and market behavior:
Fed Projection: The March 'dot plot' suggests that cuts could occur later in the year (perhaps June or July), as the Fed seeks more data on inflation and employment before acting. May does not seem the most probable time for a cut according to this guidance.
Market sentiment: Until April, the CME FedWatch Tool (a tool that measures implied probabilities in futures) indicates a 55%-60% probability of a 25 basis points cut in May, bringing rates to 4.00%-4.25%. This reflects growing bets on earlier action due to signs of economic slowdown (GDP estimated at -2.8% to -3.7% for Q1 2025 according to some analysts) and drops in consumer confidence.
Key factors:
Trump Tariffs: Implemented since early 2025, they are raising costs and fueling fears of stagflation (high inflation + low growth). Powell has stated that this could justify keeping rates high for longer, but a severe recession could force a cut.
Economic data: Employment reports (April will show March) and April's CPI (released in May) will be crucial. If unemployment rises beyond the projected 4.4% or inflation shows signs of moderation, the Fed could act in May.
Financial markets: The S&P 500 is in correction (-10% from its peak), and posts on X suggest panic over a possible recession, which could pressure the Fed to intervene.
Possible Scenarios for May 7
Rates unchanged (4.25%-4.50%): Most likely scenario if inflation remains near 2.8% and unemployment does not spike. The Fed might choose to wait until June for its first cut, as suggested by its March projections.
25 basis points cut (4.00%-4.25%): Possible if April data shows significant economic slowdown (confirmed negative GDP, rising unemployment) and inflation does not accelerate further. This would align with market bets.
Larger cut (50 basis points): Unlikely unless there is a clear crisis (e.g., market collapse or catastrophic data), but not ruled out if the recession is confirmed earlier.
What people are saying
Posts on X reflect a mix of optimism and fear:
Some believe that the Fed will 'kneel' in May, lowering rates and ending QT under market pressure.
Others, more skeptical, say that with inflation at 2.7%-2.8% and a weak but not collapsed GDP, the Fed will hold firm until summer.
Conclusion
Without a crystal ball, the most reasonable expectation is that the Fed will keep rates steady in May unless April data shows clear urgency (confirmed recession or rapidly falling inflation). The consensus so far points to a pause, with cuts more likely in June or July. But it all depends on how the effects of tariffs, employment, and consumption evolve in the coming weeks. The decision will be announced on May 7, 2025, at 2:00 PM EDT, followed by Powell's press conference at 2:30 PM EDT.
Do you want me to delve into something specific, like the expected data or the impact on a specific market? Let me know!
Note: This is not financial advice; consult an expert for actual decisions.
