Fed Officials Throw Cold Water On Hopes of a Summer Interest Rate Cut

Yahoo

20-05-2025

The Federal Reserve is not likely to cut interest rates at its next two meetings in June and July, central officials said in interviews this week.
The Fed has kept interest rates at a higher-than-usual level this year as it waits to see how President Donald Trump's tariffs will affect the economy.
A weakening job market could push the Fed to lower rates, while surging inflation could force it to keep rates high. Tariffs could worsen both problems, posing a dilemma for the Fed.Expectations for when the Fed will cut interest rates keep getting kicked down the road.
Several bank policymakers indicated in speeches and interviews this week that the Federal Reserve is unlikely to lower its key fed funds rate at its two meetings this summer.
As of Tuesday afternoon, there was a 71% chance the Fed would keep its interest rates steady through its next two meetings, according to the CME Group's FedWatch tool. The predictions of the Fed's next moves are calculated based on fed fund futures trading data.
That's a sharp reversal of expectations. As recently as a month ago, markets were pricing in more than a 90% chance of a rate cut by July.
In an interview on MSNBC on Monday, Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said he favored waiting at least through the end of the summer before making any monetary policy moves."There's a lot of uncertainty. I think we'll have to wait three to six months to start to see where this settles out," Bostic said.Although Bostic is not a voting member of the Federal Open Market Committee that decides interest rates, non-voting members speak at the Fed's policy meetings and can influence the outcome by participating in discussions.John C. Williams, president of the Federal Reserve Bank of New York, laid out a similar timeline Monday when speaking at a conference of the Mortgage Bankers Association, Bloomberg reported.'It's not going to be that in June we're going to understand what's happening here, or in July,' Williams said, according to Bloomberg. 'It's going to be a process of collecting data, getting a better picture, and watching things as they develop.'
Fed officials have indicated they're in the same boat as everyone else: uncertain of how President Donald Trump's tariff policies will change in the coming months, and how the economy will react to radically higher import taxes.
Amid the fog of uncertainty, Fed officials have said the best move is to wait and see what happens. That attitude, repeated by multiple officials in speeches and interviews this week, has quashed expectations the Fed would resume the series of rate cuts it started late last year, putting downward pressure on borrowing costs for credit cards, car loans, and other debt.Fed officials must decide whether to keep the Fed funds rate high to smother the last embers of the post-pandemic inflation flare-up or cut rates to bolster the economy and prevent a surge in unemployment. Economic forecasts anticipate the tariffs will worsen both problems, potentially leaving the Fed in a dilemma.In addition, the White House has cracked down on immigration, Congress is working on a significant overhaul of the tax code, and federal regulators have relaxed rules on businesses—all developments with unknown effects on the economy.
Alberto Musalem, president of the Federal Reserve Bank of St. Louis, became the latest official to repeat the "wait and see" mantra Tuesday when he spoke at the Economic Club of Minnesota.
"The range of possible economic outcomes for the next few quarters is wide," said Alberto Musalem, president of the Federal Reserve Bank of St. Louis at the Economic Club of Minnesota Tuesday. "Major new trade, immigration, fiscal and regulatory policies could have a material impact on the economy in different ways and at different time horizons. As we get more clarity on these policies, the macroeconomic and monetary policy implications should become more evident."
Read the original article on Investopedia