Fed Rate Cuts? Don’t Count on It Yet
Economic Partnership
Fed Rate Cuts? Don’t Count on It Yet
Despite the economy shrinking in Q1, the Federal Reserve is holding firm. If you're expecting imminent rate cuts, it's time for a reality check.
The Big Picture
The Fed remains locked in a waiting game — monitoring inflation, employment, and the economic fallout from Trump’s aggressive tariffs. These import duties are inflaming inflation while threatening growth — a toxic mix.
“If inflation and employment clash, the Fed will prioritize whichever is furthest off course.” — Barclays
Chair Powell has made it clear: the Fed won’t blink unless inflation expectations spiral out of control or the job market takes a clear hit.
What Wall Street Expects
- Fed Futures: Still pricing in 3 rate cuts starting in July.
- Barclays: Now sees just two cuts — July and September.
- Morgan Stanley: Predicts no cuts at all until 2026.
FACT: Inflation remains elevated and tariffs are set to push it even higher — possibly up to 3.8% this year.
Why the Fed Is Holding the Line
1. Economy Not as Weak as Headlines Suggest
- Q1 GDP dip (-0.3%) was driven by import surges.
- Consumer spending: +1.8%
- Business investment: +22.5%
- Jobs added in April: 177,000
- Unemployment: Still low at 4.2%
Fed Rate Cuts? Don’t Count on It Yet
Despite the economy shrinking in Q1, the Federal Reserve is holding firm. If you're expecting imminent rate cuts, it's time for a reality check.
The Big Picture
The Fed remains locked in a waiting game — monitoring inflation, employment, and the economic fallout from Trump’s aggressive tariffs. These import duties are inflaming inflation while threatening growth — a toxic mix.
“If inflation and employment clash, the Fed will prioritize whichever is furthest off course.” — Barclays
Chair Powell has made it clear: the Fed won’t blink unless inflation expectations spiral out of control or the job market takes a clear hit.
What Wall Street Expects
- Fed Futures: Still pricing in 3 rate cuts starting in July.
- Barclays: Now sees just two cuts — July and September.
- Morgan Stanley: Predicts no cuts at all until 2026.
- Core inflation is at 2.6% — above the Fed’s 2% target.
- Tariffs are expected to accelerate price hikes by mid-2025.
Fed officials won’t base policy on consumer sentiment drops or volatile polls. They’re waiting for hard data: job losses, declining wages, and real consumption drops.
Complicating Factors
John Williams (NY Fed) expects inflation to hit 3.5–4%, with unemployment rising to 5% in 2025. But with inflation further from the target than employment, the Fed will wait.
Trump’s deportation campaign may mask a weakening labor market by shrinking the labor pool, making it harder to justify rate cuts even if hiring slows.
The Counterpoint
Goldman Sachs isn’t ruling out earlier action. If hiring softens and the May jobs report shows weakness, the Fed may cut rates sooner. Still, that's a big "if."
Bottom Line: The Fed is walking a tightrope. Trump’s tariffs are pushing inflation up. Until the job market shows serious cracks, expect rates to stay right where they are.
Written and formatted for clarity and impact — May 2025
