Happy Fed day, investors. For many market-watchers including myself, today is like the Super Bowl. I’ll be eagerly watching Jerome Powell’s speech today after the Fed announces what’s likely to be bupkis — more below. First time reading? Join 190,000 self-directed investors and subscribe here.

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The Fed won't give Trump lower rates just yet

If you’re hoping for action from the Federal Reserve today, prepare to be disappointed.

Markets expect Fed Chair Jerome Powell and his colleagues to hold interest rates steady at the conclusion of their two-day May meeting, even as calls for cuts grow louder. President Trump has led the way in ramping up pressure, dubbing Powell “Mr. Too Late.”

We could see that jab could become prophetic.

While Fed officials have emphasized their “wait and see” approach, the economic backdrop continues to shift as the White House stokes uncertainty.

The decision to roll out tariffs in fits and starts has jolted financial markets and introduced a new ambiguity to the inflation outlook, all of which complicates the Fed’s job.

Policymakers must weigh the risk of premature rate cuts against potentially waiting too long and triggering a recession. 

The case for patience has some merit. The labor market, for one, is holding steady. The US added 177,000 jobs in April, above the consensus estimate for 133,000.

Unemployment, too, held firm at 4.2%, and inflation has fallen to multi-year lows. 

Soft data, on the other hand, suggests it’s time for action. A Morgan Stanley survey of 2,000 consumers taken during the last week of April found that 42% plan to cut back on spending due to tariffs. 

And while sentiment data tends to skew by political affiliation, the bank pointed out that the outlook for both conservatives and liberals have turned lower since February.

Meanwhile, a recent Dallas Fed survey found executives across Texas’ manufacturing sector backing Trump’s call for cuts. 

“There is too much uncertainty, including a possible recession,” one Texas executive put it, per the Fed survey. “Interest rates are too high. The Federal Reserve always seems to be late for their own party.”

It’s possible that’s already playing out. First-quarter GDP contracted 0.3% — that partly reflects a surge in imports ahead of tariffs, but growth still seems to be slowing, which means the Fed’s odds of a misstep are rising.

The Fed may be correct in believing it has some leeway for now, but it won’t last.

Tariff fears look increasingly likely to cut into consumer spending and economic growth, which could ultimately force the Fed’s hand. 

Unfortunately for Powell, the difference between “wait and see” and “too late” is narrowing by the day.

Market snapshot

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Elsewhere

✂️ Traders are betting on a slower pace of rate cuts. Money markets are now pricing in three quarter-point reductions in 2025, one less than at the start of April. Traders will be scrutinizing Powell’s comments Wednesday for any sign of a bias toward cutting or holding steady. (Bloomberg)

📊 Investors see reason for optimism moving forward. First-quarter earnings have been better than feared and most outlooks remain positive. Same with economic data. Plus, sentiment is out of proportion with the facts. (Barron’s)

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About me

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day, unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else. Feedback? Reply to this email, ping me on X @philrosenn, or write me directly at phil@openingbellmedia.com.