Five reasons why the Fed is unlikely to cut interest rates on May 7

The US Federal Reserve Chair Jerome Powell is widely expected to hold rates steady on May 7, keeping the key policy rate in the 4.25% to 4.50% range, where it has remained since December 2024. According to CME Group data, futures traders currently assign a probability of over 95% to the Fed making no changes at this meeting.1 / 5Tariff-driven inflation risk is rising: President Donald Trump’s steep new tariffs — including a 145% duty on Chinese goods — are expected to push prices higher. While the effect may be one-time, multiple rounds of duties and talk of future hikes on key sectors like pharmaceuticals and semiconductors could worsen inflation expectations, something the Fed is closely watching. (AP Photo/Richard Drew).2 / 5The economy is not weak enough yet: Despite some signs of slowing growth, the US economy is still expanding. Unemployment remains low, and consumer spending has held up — partly as buyers rush to make purchases ahead of tariff-related price increases. The Fed typically cuts rates when the labour market weakens significantly, which has not yet happened. (AP Photo/Jacquelyn Martin)3 / 5Rate cuts could appear politically motivated: Trump has repeatedly called for rate cuts and criticised Powell personally. Cutting rates now could be interpreted as bowing to political pressure, undermining the Fed’s independence — especially with Trump already stating he plans to replace Powell when his term ends in 2026.. (AP Photo/Jacquelyn Martin)4 / 5Uncertainty around long-term impact of tariffs: Economists say the full economic effect of Trump’s tariffs remains unclear. Some businesses are already delaying investment decisions, but the Fed wants to see hard data — such as changes in job growth or demand — before reacting.5 / 5Price stability still remains the priority: Chair Jerome Powell has made it clear that tackling inflation remains the Fed’s top priority. “Without price stability, we cannot achieve the long periods of strong labour market conditions that benefit all Americans,” Powell said recently. Cutting rates too soon could undermine that goal.. (AP Photo/Alex Brandon, File)Continue Reading

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