Federal Reserve and US Dollar Index interest rates!

Based on the latest Federal Reserve statements, economic data, and market expectations, *the Fed is unlikely to cut rates at its next meeting (May 6-7, 2025)*—but a cut later in 2025 (likely Q3 or Q4) remains possible. Here’s the reasoning:

1. Why No Cut in May?

- Inflation Still Elevated: Core PCE (Personal Consumption Expenditures) inflation (2.8% as of March 2025) remains above the Fed’s 2% target, and new tariffs could push prices higher temporarily.

- Strong Labor Market: Unemployment is low (4.4%), giving the Fed little urgency to stimulate the economy.

- "Wait-and-See" Stance: The March statement emphasized needing *"greater clarity"* before adjusting policy. One month of data (Apri-25l) won’t provide enough evidence.

- No Strong Recession Signals: GDP growth, while downgraded (1.7% for 2025), isn’t collapsing. The Fed can afford patience.

2. When Might Cuts Happen?

- June 2025: If April/May data shows cooling inflation + weaker jobs, the Fed could start cuts. Markets currently price in a ~40% chance of a June cut.

- Q4 2025: More likely if inflation stays sticky but growth slows. The Fed’s "dot plot" projects two 2025 cuts, suggesting a later timeline.

3. Risks That Could Delay Cuts Further

- Tariff-Driven Inflation: If new U.S. tariffs (e.g., on China) keep inflation high, the Fed may hold rates longer.

- Strong Consumer Spending: Resilient demand could delay disinflation.

- Geopolitical Shocks: Oil price spikes or global instability might force the Fed to prioritize inflation over growth.

4. What Could Trigger Earlier Action?

- Sharp Rise in Unemployment: If jobless claims jump, the Fed might pivot faster.

- Banking/Market Stress: A financial crisis (like March 2023) could force emergency cuts.

- Inflation Falling Faster Than Expected: Unlikely in the near term, but possible.

Bottom Line

- May Meeting: Almost certainly a hold (4.25%-4.5%). Powell will likely repeat a data-dependent stance.

- Next Real Chance for a Cut: Q3 or Q4 2025, but only if inflation trends downward convincingly.