publication
2025-05-07 20:00
update
2025-05-07 20:43
The Federal Open Market Committee (FOMC) did not change the level of interest rates, which was included in the expectations of market and analysts. Investors, however, hope that the pause in the loosening of monetary policy will end in the summer.
The range of federal funds remained unchanged at 4.25-4.50%
– the Federal Open Market Committee (FOMC) announced in the announcement. The May decision was made unanimously and was consistent with the expectations of economists and market participants.
– Although net export fluctuations had an impact on data, the last indicators suggest that economic activity is still increasing at a solid pace. The unemployment rate has stabilized in recent months at a low level, and the conditions on the labor market remain strong. Inflation remains slightly increased – we read in the May FOMC message.
– The committee is sensitive to risk to both sides of its double mandate and thinks that the risk of higher unemployment and higher inflation has increased – This is quite an unusual sentence for the message of central bankers. It is somewhat admitting helplessness in response to such a shock that President Trump's customs policy may be for the US economy.
– Uncertainty about economic prospects increased even more The committee reserved.
Also in May, Fomc did not change the level of interest rates, but decided to limit “quantitative tightening” (QT) of monetary policy. Starting from April, the Federal Reserve limited the rate of reducing its balance sheet sum from USD 60 billion to USD 40 billion per month.
Post -election “Pause” in monetary loosening
– We do not have to hurry and we are well prepared to wait for greater clarity (regarding the policy of the Trump administration – editor's note) – said the head of the US central bank on March 7.
Also in January, a decision was made to maintain the range of federal funds rate unchanged. Earlier, at each of the previous three meetings, the Committee made decisions to reduce the rate of federal funds. In September, it was decided to start a series of loosening of the monetary policy with a reduction of the feet by as much as 50 PB.
That decision was quite controversial, because only in 2001 and 2007 the Federal Reserve started a series of reductions with such a large cut. The narrative of the chairman Powell talking about the “recalibration” of monetary policy was not very convincing. In November a second reduction was made, but this time with “standard” 25 base points. Also at 25 pb. The feet in the US were cut in December. The total scale of last year's reductions was therefore 100 PB.
The 73% time market values the chances that at least a 25-point reduction in federal funds will take place during the June or July FOMC meeting-according to the Fedwatch Tool calculations. By the end of 2025, a total rate reduction in Feda is valued at 75-100 pb. This is more than suggested by the “Fedocrop” March system, where most of the votes were drawn only for the 50-point foot reduction to the end of this year.
– The Committee is strongly determined to support the full employment fine and bring inflation back to a 2 % goal- it was recalled in the May Federal Committee of the Open Market Square.
The next meeting of the Federal Open Market Committee is scheduled for June 17-18.
Powell: Time will show how the economy will react to the customs
– Despite increased uncertainty, the economy is still in a solid position. The unemployment rate remains low and the labor market is in a state of almost full employment. Inflation has significantly decreased, but it lasts slightly above our 2 % long-term purpose-so the head of the Federal Reserve Jerome Powell determined the state of the economy during the May press conference.
– Studies of households and enterprises pointed to a sharp decrease in moods and increased economic uncertainty, mainly reflecting concerns about customs policy. Time will show how these accidents can affect future consumer and investment expenses – said the chairman of Powell.
The head of the Fed pointed out that the growth of customs tariffs will probably generate an increase in inflation and a slowdown in economic growth. – Inflation effects can be short -lived, reflecting a one -time change in price level. However, it is also possible that the inflation effects will be more persistent – noted Powell.
– We can find ourselves in a difficult situation in which the goals of our double mandate will be threatened – the head of the federal reserve reserved. – We are in a good position to wait and see what will happenJerome Powell calmed down. He also added that the inflation situation is generally under control and that the US central bank does not have to hurry with its decisions.
Powell repeated many times that the Fed must be “patient” and that he could calmly wait for the development of the situation. Only when the consequences for the economy are known will he be able to take action. The head of the Fed did not specify when such a state could be achieved. He spoke a lot about uncertainty related to customs policy and commercial negotiations.
