97% of market participants expect the US Federal Reserve to keep interest rates unchanged on May 7, despite mounting pressure from President Donald Trump and some of his deputies, according to the CME Fedwatch Tool.Latest data shows that price increases in the US are cooling off slowly, which would be welcome if not for the new tariffs on imports, imposed by the Trump administration, which may reverse the trend; pushing prices back up and adding to the uncertainty. This puts Fed Chair Jerome Powell is in a tough spot.
On one hand, the economy shows signs of strength, with government data revealing a gain of 177,000 jobs in April. A healthy job market gives the Fed more reason to wait and watch, despite growing fears of an economic slump in the near future due to the tariffs.
Fitch Ratings has downgraded its US growth forecast for 2025 to just 1.2%, down from 2.8% last year. Still, the ratings agency does not expect the Fed to cut rates anytime soon because it also estimates US inflation to return to over 4% by year-end. Sliding growth makes a case for interest rate cuts, and rising inflation cancels it out.Craig Chan, Head of Global FX Strategy at Nomura, said investors are becoming nervous due to shifting US policies. First, concerns focused on global risks and their impact on artificial intelligence. Later, the spotlight moved to trade rules and restrictions. Now, some are even questioning whether US treasuries could be taxed differently. All these changes have made investors less confident, leading many to reduce their US investments.Steven Major, Global Head of Fixed Income at HSBC, expects the Fed to make three rate cuts this year, with more to follow in 2026. However, he acknowledged the uncertainty in forecasts: “It’s like saying there’s a 50% chance they cut six times, and a 50% chance they don’t cut at all,” he added.Also Read: Inflation, not recession, is the risk: Taimur Baig explains why the market may be getting it wrongAlso Read: India may extend gains over China, but global risks remain high: Geoffrey DennisCatch all the latest updates from the stock market here
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