TL;DR
The Fed announces its rate decision tomorrow amid Trump-Powell tensions. Inflation control remains the likely priority.
The pivotal day when the Fed will decide its new interest rate decision is finally upon us. After months of escalating tensions between the U.S. Central Bank and the President of the United States, May 7th will finally mark the new economic policy to shape the American economy.
Donald Trump’s trade wars with China, and aggressive foreign trade policy stance against pretty much the entire world have not made it easy for Powell to decrease interest rates. While the U.S. labor market is still doing well, the same cannot be said for other economic sectors.
Under Jerome Powell, the Federal Reserve has prioritized economic stability, not being afraid to raise interest rates to historical levels to stabilize the economy in the post-COVID world. This decisive action helped tame inflation, reinforce financial stability, and restore confidence in the Fed’s commitment to long-term economic resilience.
This underlying characteristic leads many to believe that it will be highly unlikely that the Fed decreases interest rates tomorrow—especially when considering the hints of inflationary pressures affecting the U.S. economy.
Just last week, the startling GDP report for the first quarter of the year revealed that—if the trajectory does not change—America will be heading to a recession in 2025. Despite hopes for economic recovery, signs of slower consumer spending, tightening credit conditions, and weakening business investment have fueled concerns.
Over the last month, President Trump has repeatedly pressured Jerome Powell to decrease interest rates at the May 6–7 FOMC meeting. To the point of rallying for his resignation, something the President stopped doing after the U.S. Bond Market reacted unfavorably to the potential breach in the central bank’s independence.
So, while a potential interest rate cut would stimulate growth, investment, and market optimism, the Federal Reserve will likely prioritize maintaining inflation under control. Jerome Powell himself has stated that he expects around two rate cuts to happen in 2025, but given the current uncertainty surrounding the U.S. economy, plans may be postponed until later meetings.
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