Federal Reserve Decision Looms: What Will Powell Say on 7 May?

The Fed has been gradually lowering rates from the aggressive increases implemented during 2022-23 to combat post-pandemic inflation. Most market analysts expect the central bank to maintain its current benchmark range of 4.25%-4.50% at the third of this year’s rate decisions, despite public pressure from President Trump for further cuts.

"We expect the Fed to hold rates steady for the second straight meeting and, given heightened uncertainty, provide limited guidance about the policy path ahead," Matthew Luzzetti, chief US economist at Deutsche Bank, wrote in a commentary.

Tariff impact

Politics aside, Powell will have to incorporate the impact of Trump’s tariff initiative on the US economy and international trade into the Fed’s latest thinking as he prepares to guide markets on key indicators such as consumer price increases and jobs. The Fed Chair has so far adopted a “wait and see” approach since Trump’s second inauguration. 

“We do not need to be in a hurry and are well positioned to wait for greater clarity,” he said at his 7 March Economic Outlook speech at the University of Chicago.

Data from the same month showed annual inflation falling to 2.4%, although this decline preceded the market rout triggered by Trump’s trade tariff announcements on what he branded “Liberation Day”. With inflation still above the Fed’s 2% target, any “hawkish” tone from Powell regarding price pressures could filter through into sentiment in financial markets.

Employment data presents a nuanced picture. While federal government payrolls have contracted due to recent cost-cutting measures, a mid-April employment survey revealed stronger-than-expected job growth nationwide. This resilience in the broader labour market provides additional support for keeping rates steady.

Economic outlook

That leaves the overall view of the economy, which is unlikely to be rosy or risk-free. 

Although a cautious look from the Fed is not necessarily going to drive down the price of Bitcoin. Traders and investors who regard the leading crypto asset as a source of safety may seek to buy more if Powell strikes a measured or concerned tone about economic prospects, as was the case in March when the FOMC left rates unchanged.

In an environment marked by unpredictable policy announcements from the White House, the Federal Reserve's methodical, data-driven communication style may even offer markets a stabilizing influence.