Fed likely to hold steady in May, but eyes turn to Powell for clues

Lale Akoner, global market analyst at eToro says: “The Fed is very likely to hold rates steady at its May meeting. Barring a major shift in the data, a cut this month looks unlikely. Focus will be on Fed Chair Powell’s guidance, especially any signals about the duration of the hold. While risks to US growth are tilting downwards, “hard” data such as jobless claims, supports a pause over a pivot.

“The Fed’s credibility is central to its decision-making framework, especially after recent political tension with the Administration. There’s an institutional desire to appear independent and grounded in data, but this could also lead to policy staying restrictive for too long, with heavy reliance on backward-looking indicators delaying any move to ease.

“While the labor market still looks relatively strong on the surface with low jobless claims, minor cracks are showing. Fewer lay-offs, but also fewer new hires, suggests late-cycle labour hoarding, and it’s worth watching.

“Inflation within the 2–3% range typically gives a central bank room to pause. But the Fed is clearly looking for more clarity. Powell’s post-meeting remarks will be crucial, particularly on framing inflation risks against labour market resilience.

“If there’s no rate cut by June, the Fed may end up waiting until October. That would give the committee time to evaluate how much of the second quarter’s activity was front-loaded, and whether the expected slowdown in Q3 growth materializes. Until then, any near-term economic cushioning will likely come from trade, fiscal, or regulatory levers, not monetary policy.”