The US Federal Reserve (Fed) is expected to keep interest rates unchanged at its upcoming meeting. Market focus is now on new projections to be released to gauge the impact of softening economic data and ongoing trade risks. Recent inflation data has eased fears that President Trump’s tariffs would immediately raise prices. A slowdown in the labor market and signals of low inflation suggest the Fed may be leaning towards renewed interest rate cuts. However, uncertainties regarding trade and fiscal policies persist.
Trump is demanding aggressive interest rate cuts from the Fed, but the Fed remains cautious. Trade tensions are not yet resolved, and the risk of new tariffs is still present.
Since the last meeting, the administration has postponed some new tariffs, but concerns remain about the potential negative impact on inflation and growth.Economist Gregory Daco from EY-Parthenon predicts that the Fed will continue its “wait-and-see” approach rather than an immediate policy change. While inflation is slightly above the 2% target, core inflation excluding food and energy has been closer to the target in recent months. The unemployment rate has remained stable at 4.2%.
Goldman Sachs reported that it lowered the probability of a recession for 2025, forecasting higher growth and lower inflation. However, the firm did not change its expectations regarding the Fed’s interest rate policy and predicts that rates will remain stable until December. Tim Duy of SGH Macro Advisors stated that the Fed may update its outlook and that a small interest rate cut is possible this year. The retail sales data to be released next week may show the impact of tariffs on consumer demand more clearly. Some analysts predict that weakening demand could pull inflation down and that the Fed may proceed with faster interest rate cuts starting in September. In conclusion, while tariffs may lead to some price increases, the slowdown in overall inflation in the services sector may limit this effect. This makes it more likely that the Fed will continue on its path of interest rate cuts.
