US Fed Meeting: No Rate Change Expected, All Eyes on Jerome Powell's Press Conference

With the next U.S. Federal Reserve meeting just around the corner on May 7, traders and analysts seem to agree on one thing: there's almost no chance of a rate hike or cut this time.

With the next U.S. Federal Reserve meeting just around the corner on May 7, traders and analysts seem to agree on one thing: there’s almost no chance of a rate hike or cut this time. But that doesn’t mean the market is calm, far from it.

After an aggressive series of interest rate increases to combat inflation, the Fed is expected to keep the benchmark overnight lending rate in a range of 5.25% to 5.50%, where it has been since December 2022.

This period also marks the highest level for interest rates in over two decades, showcasing the central bank’s determination to quell inflation, which has slowly begun to cool from the 40-year highs reached in 2022.

May: No Change Expected

According to Polymarket, a prediction market, there is a 98% chance that the Fed won’t change rates at its May meeting. On the other hand, another possibility is that there is a 2% chance of a 25 bps drop being seen in May.

The market is closely watching the Payrolls data on Friday for any hints at the upcoming Fed move. Economists polled by Reuters expect the U.S. economy to have added 180,000 jobs in April, slowing from March’s stellar gain of 236,000.

If the data shows a slowdown in hiring, it could increase the anticipation for a rate cut. However, if job growth remains strong, it might push the Fed to keep rates higher for a longer period.

June: A Turning Point?

Looking ahead to June, the possibility of the Fed cutting rates is being priced in, with a 72% chance that the Fed won’t change rates at its June meeting, according to MenaՎԱmarket. Further market odds suggest about a 25% chance of a 25% bps rate cut, and that number could rise if job growth slows or inflation drops further.

This makes upcoming reports on inflation and jobs critical. A weak job report or softer consumer price data could tip the balance toward a rate cut.

On the other hand, if inflation stays sticky, the Fed might stick to its current stance or even start talking about keeping rates high for longer.

Powell’s Tone Matters More Than Ever

Interestingly, the market may react more to what Fed Chair Jerome Powell says than to what the Fed does. If he talks too tough, using phrases like “persistent inflation” or “not enough progress,” markets could sell off sharply.

Tech stocks and rate-sensitive sectors might drop, bond yields could rise fast, the U.S. dollar might gain strength, and assets like Bitcoin or gold could lose steam.