All Eyes on the Fed — Even Without a Rate Cut on the Table
The Federal Open Market Committee is set to meet on May 6–7, and while a rate cut isn’t expected, the outcome will be closely watched by investors—and by former President Donald Trump.
Trump has made no secret of his desire for lower interest rates. On Friday, he posted in all caps on Truth Social: “NO INFLATION, THE FED SHOULD LOWER ITS RATE!!!” His push for a rate cut is driven by the belief that looser monetary policy would spur economic growth and lift the stock market—developments that could benefit him politically.
But the Fed isn’t in a hurry. Despite having cut rates three times in late 2024, Chair Jerome Powell signaled in December that fewer cuts would come in 2025. The Fed’s “dot plot” now projects just 50 basis points of cuts this year, down from the 100 basis points forecasted in September. Markets responded poorly, with the S&P 500 falling nearly 3% after the announcement.
One reason for the more cautious tone is the uncertainty stemming from new economic policies. Tariffs, immigration restrictions, and other measures introduced by Trump’s administration have yet to fully show their impact in the data. Many of the announced tariffs have been delayed or revised, complicating the Fed’s data-driven approach.
“There’s a real split between the hard data and soft data right now,” said Allen Bond of Jensen Investment Management. “While sentiment indicators are weakening, the actual numbers haven’t shown significant cracks yet.”
Trump vs. Powell
The clash between Trump and Powell intensified after Powell warned that tariffs could push inflation higher, and said the Fed would remain cautious. Markets dropped on those comments—by 6% on April 4 and another 2.2% on April 16.
Trump responded by escalating his criticism of Powell, calling him “Too Late Jerome” and threatening his removal. That rhetoric spooked investors, who feared it could undermine the Fed’s independence—a key pillar of U.S. market stability. The S&P 500 fell 2.4% on April 17 after Trump suggested he could oust Powell.
That independence is a major draw for international investors, said Steve Sosnick of Interactive Brokers. “When you threaten it, you’re threatening a foundation of U.S. market credibility.”
Eventually, Trump backed off his remarks, saying he had no intention of firing Powell. Markets rebounded, and the S&P 500 began a rally that would become its longest winning streak in over two decades—nine straight trading days.
What to Expect from This Week’s Fed Meeting
The rally, fueled partly by progress on trade talks and partly by Trump’s softened stance on Powell, has now set a high bar for this week’s Fed meeting. While no rate cut is expected, investors are hoping Powell’s commentary will hint at future easing.
But those hopes may be premature. According to the CME FedWatch tool, markets are pricing in a 99.5% chance that the Fed holds rates steady in May, with expectations for three cuts later this year. Powell has previously indicated the Fed will wait for more clarity, especially around the effects of Trump’s tariffs. That clarity may not come until the current 90-day tariff pause ends in July.
Sosnick warns that even if rate cuts come, they may not arrive for the reasons investors want. “If inflation cools, cuts could happen. But if the economy weakens, that’s a ‘careful what you wish for’ scenario,” he said.
For now, markets are holding up. The S&P 500, Dow Jones Industrial Average, and Nasdaq all posted strong gains last week, with the Dow and S&P 500 logging their longest winning streaks since January 1992. But whether the Fed meeting extends or interrupts that momentum remains to be seen.
