Crédit Mutuel AM: Patience remains key
As with financial markets, we anticipate that the Federal Reserve (Fed) will maintain its monetary status quo in May, in response to uncertainties over protectionism and trade war.
Our expectations are as follow:
- Interest Rate Stability: It is widely expected that the Federal Reserve will maintain its target rate on hold at the upcoming Federal Open Market Committee (FOMC) meeting on May 6-7 in a range between 4.25% and 4.50%. Current economic indicators do not support a rate cut: Although the US economy contracted in Q1 2025, the decline was mainly driven by a surge in imports, while final sales to domestic purchasers – an indicator of underlying domestic demand – remain robust. Moreover, the labor market remains strong and inflation remains above the Fed's 2% target.
- Press Conference: Federal Reserve Chairman Jerome Powell is expected to reiterate that US monetary policy is currently well positioned to respond to evolving macroeconomic indicators. This cautious stance allows the FOMC to wait for more clarity on the implications of Donald Trump's new policies, particularly in the areas of trade, fiscality, regulation and immigration.
- Flexibility and data dependency: Jerome Powell will stress that the Federal Reserve is in no rush to cut rates except in the event of an unexpected deterioration in the job market or lower than expected inflation.
In conclusion, we expect the US Federal Reserve will reaffirm its “wait and see” stance, while maintaining a firm tone on monetary policy. This strategy aims to anchor long term inflation expectations and uphold the institution’s credibility. In the absence of any change in the Fed's communication and immediate adjustment to policy rates, this meeting is unlikely to be a major event for financial markets, according to our analysis.
