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In the wake of recent tariff turmoil in markets, investors have walked back their expectations for an interest rate cut from the Federal Reserve come May.
Fed funds futures markets are now pricing in a 16% chance of a 25bps cut next month. That’s down from 45% just a week ago.
What changed? FOMC members started talking.
Fed Governor Chris Waller said yesterday that the inflationary impact of tariffs could be “temporary.” He’s said that before, but he added that should the economy slow too much, he expects the FOMC will cut “sooner.”
Chair Jerome Powell said earlier this month that the central bank plans to take a “wait-and-see” approach to Trump’s trade policies. Given the runaround the administration has given markets these past two weeks, this isn’t surprising. It’s hard to speculate too much on the inflationary impacts when the tariff rates change on an almost daily basis.