Topline

The Federal Reserve will convene this week to vote on interest rates, and economists and investors widely expect the central bank to hold rates the same, despite repeated, loud requests from the Oval Office to slash rates.

Key Facts

Crucial Quote

“The May FOMC meeting looks like a placeholder,” Bank of America economists led by Aditya Bhave remarked in a recent note to clients.

Fed Meeting This Week Follows Trump’s Threats To Fire Powell

This week’s meeting may not bring much in terms of fireworks, but President Donald Trump identified Powell as one of his top targets in the early days of the president’s second term as the Fed declined to cut rates. Over the last month, Trump has called Powell “Mr. Too Late,” a “total stiff” and a “major loser” amid his demands to lower rates. Trump reportedly discussed firing Powell, a move which comes with shaky legal footing, but has since backed off. Powell was appointed to his post as the U.S.’ top monetary policy official by Trump in 2017.

What To Watch For

How Powell addresses the high-profile criticism from Trump. Powell has made clear he believes the president lacks the legal authority to remove him before his term expires in 2026, but has not explicitly addressed the latest bout of name calling. “It’s likely that he’ll have to field some questions about the president’s remarks about the Fed, and Powell will almost certainly choose not to comment on those remarks,” predicted Michael Feroli, J.P. Morgan’s chief U.S. economist.

Key Background

The Fed only nominally determines the target federal funds rate, the fee which financial institutions must pay when lending to each other in overnight transactions, but its monetary policy heavily influences borrowing costs from corporate debt offerings to student loans. Higher rates tend to slow economic growth as companies tighten spending in response to elevated borrowing costs’ impact on bottom lines, while lower rates typically stimulate the economy as companies loosen their belt and spend more freely thanks to cheaper loans. The Fed operates on a dual mandate system to keep inflation manageable and employment robust. The inflation mandate has largely taken precedence over the last four years after inflation roared to a four-decade high in 2022. Inflation has moderated slowly since then, and the Fed’s preferred measure of price changes came in at a four-year low of 2.8% in March, though that’s still well above the central bank’s 2% goal, and economists widely expect tariffs will lead to a sizable increase in consumer prices. The labor market has proven steady, as the U.S. added a better-than-expected 177,000 jobs last month as the unemployment rate held at 4.2%.

What Does The Fed Need To See To Cut?

Powell is likely to signal Fed staff are “well positioned to wait for greater clarity before making any changes to policy,” according to Feroli. But it’s still highly likely the Fed will further lower rates this year, with traders pricing in 99.6% odds of a cut in 2025. Goldman’s chief U.S. economist David Mericle wrote Sunday it’s likely even high inflation wouldn’t “deter” the Fed from cutting rates if there’s evidence the “tariff shock hits the economy.” Among the data points which could cause the Fed to cut would be a notable increase in unemployment, weak job growth and a decline in capital goods orders, a measure of how much companies are spending, according to Mericle. Goldman projects the Fed will cut rates by 25 basis points apiece at its July, September and October meetings, resulting in a target federal funds rate of 3.5% to 3.75%.

Further Reading

ForbesCan Trump Fire Jerome Powell? Federal Reserve Chair Thinks No As President Reportedly Eyes His ‘Termination.’By Derek Saul
ForbesU.S. Economy Shrank During 2025’s First Quarter As GDP Slipped 0.3%By Derek Saul

ForbesU.S. Added 177,000 Jobs In April As Trump Celebrates ‘Strong Employment’By Derek Saul