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The Federal Reserve (Fed) is all set to announce its interest rate decision at 18:00 GMT today, followed by a press conference with Chair Jerome Powell at 18:30 GMT to discuss the committee’s decision.

The Fed’s Stance: Keeping It Steady Amid the Uncertainty

The Federal Reserve (Fed) is expected to keep its benchmark interest rate unchanged today, maintaining the federal funds rate in the 4.25%–4.50% range where it has remained since the most recent cut in December.

In March 2025, the Fed held rates steady at the same level, in line with Wall Street expectations. This cautious approach reflects concerns over President Donald Trump’s tariff policies, which have heightened the risk of stagflation, a potential scenario characterized by rising inflation coupled with slow economic growth.

Fed Chairman Jerome Powell has emphasized a data-driven approach, focusing on inflation and labor market trends, with potential rate cuts eyed for June or July if economic conditions weaken.

FOMC Projected Funds Rate

Each green dot, also known as the ‘dot plot,’ reflecting each member’s rate expectations = FOMC participant’s view of the federal funds rate midpoint for year-end or long run.

2025: Most officials expect rates in the range of ~3.75%–4.25%, reflecting a cautious outlook as inflationary pressures from tariffs and steady labor market conditions persist. This range suggests limited room for aggressive rate cuts in the near term.

2026: Projections shift lower to ~3.00%–3.75%, indicating expectations of easing monetary policy as inflation potentially moderates and economic growth stabilizes.

2027: Rates are expected to settle at 2.5%–3.5%, aligning with the Fed’s long-term neutral rate estimates, balancing growth and inflation in a post-tariff environment.

Why This Decision Matters to Traders

The Fed’s policy shapes asset prices across multiple markets. Here’s how the May decision could impact key instruments:

Forex: USD in the Spotlight

Interest rate decisions drive currency valuations. A rate hold could strengthen the U.S. dollar, attracting yield-seeking capital. Traders should watch pairs like EUR/USD, USD/JPY, GBP/USD, USD/CHF, and USD/CAD for volatility. A hawkish hold, signaling no near-term cuts, might depress EUR/USD, while dovish hints of future cuts could lift GBP/USD or USD/CAD.

Stocks and Indices: Growth vs. Inflation

The S&P 500 rose 1.1% after the March hold, reflecting equity resilience in a stable rate environment. However, tariff-induced inflation risks could pressure trader confidence. Broader equity markets may gain if rate cut expectations grow, while real estate and consumer discretionary stocks could weaken if Powell remains cautious. Sector-specific moves will hinge after Powell’s press conference.

Cryptocurrencies: Volatility Looms

Cryptocurrencies like Bitcoin and Ethereum respond sensitively to rate shifts. Lower rates often boost risk assets, but the current high-rate environment has fueled volatility. Post-March, Bitcoin dropped by 30% amid tariff fears. A dovish May signal could spark a rally, with speculative forecasts suggesting that Bitcoin could reach $250,000 by year end.

Commodities: Gold’s Safe-Haven Strength

Gold hit a record $3,500 after the March hold, driven by tariff uncertainty. A May hold could sustain this trend, especially if inflation persists. Oil remains range-bound ($70–$85/barrel), balancing supply constraints and growth concerns. Powell’s inflation comments could boost silver and platinum demand, but a stronger USD might cap gains. Commodities traders should stay vigilant post-announcement.

Key Factors Shaping the Fed’s Decision

Traders may track CPI, PPI, and jobs data closely. A weak jobs report could strengthen June cut expectations, impacting USD/JPY and S&P 500 futures.

The Fed’s May deliberations will consider:

• Tariff Pressures: Trump’s April 2025 tariffs on Chinese imports could push inflation above 2.7% (up from 2.5%), delaying cuts.
• Labor Market: April’s 177,000 job additions and 4.2% unemployment rate support a hold, but rising unemployment could shift policy.
• Inflation Trends: The PCE gauge showed 2.3% inflation in March, down from 2.6% but tariff-related pressures could reverse this progress.
• Fed Forecast Revisions: The Fed raised its 2025 inflation forecast to 2.7% with GDP growth projected at 1.7% and unemployment expected to reach 4.4%.
• Global Context: Potential rate cuts by the Bank of England and Bank of Japan in May could lead to market reactions.

Conclusion

While a May cut is unlikely, the FOMC statement and Powell’s press conference will hint at June’s meeting, where a 25-basis-point cut is possible if data weakens. The March dot plot signaled two 2025 cuts, making June’s update critical for long-term expectations.

Trading during Fed interest decision tests discipline. Tariffs and global trade tensions add complexity, but the Fed’s cautious stance mirrors a trader’s mindset: analyze data, avoid rash moves, and pivot when needed.

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