- The Federal Reserve is expected to leave the policy rate unchanged for the third consecutive meeting.
- Fed Chairman Powell will speak on the policy outlook in a press conference.
- The US Dollar could stay resilient against its rivals if the Fed keeps its focus on the inflation outlook.
The United States (US) Federal Reserve (Fed) will announce monetary policy decisions following the May policy meeting on Wednesday. Market participants widely anticipate the US central bank will leave policy settings unchanged for the third consecutive meeting, after cutting the interest rate by 25 basis points (bps) to the 4.25%-4.5% range in December.
The CME FedWatch Tool shows that investors virtually see no chance of a rate cut in May, while pricing in about a 30% probability of a 25 bps reduction in June. Hence, market participants will scrutinize the changes in the policy statement and comments from Fed Chairman Jerome Powell in the post-meeting press conference for fresh hints on the timing of the next rate cut.
Before the Fed went into the blackout period, several policymakers voiced their concerns over the uncertainty created by the US’ new trade regime weighing on the labor market.
Minneapolis Fed President Neel Kashkari said that some businesses indicate that they are preparing for possible job cuts if uncertainty continues. Similarly, Fed Governor Christopher Waller told Bloomberg that he wouldn’t be surprised to see more layoffs and higher unemployment, adding that rising unemployment could pave the way for rate cuts. As the Bureau of Labor Statistics reported that Nonfarm Payrolls rose by 177,000 in April, surpassing the market expectation of 130,000, and the Unemployment Rate remained unchanged at 4.2%, investors turned reluctant to price in a rate cut in June.
Previewing the Fed’s May meeting, analysts at Danske Bank said, “We expect the Fed to maintain its monetary policy unchanged in the May meeting, in line with consensus and market pricing.”
“While we expect the Fed to resume cutting rates in June, we doubt Powell will opt for clear forward guidance amid the tariff uncertainty. Growth risks remain tilted to the downside, but rising inflation expectations are still a concern,” the analysts added.
Economic Indicator
Fed Monetary Policy Statement
Following the Federal Reserve’s (Fed) rate decision, the Federal Open Market Committee (FOMC) releases its statement regarding monetary policy. The statement may influence the volatility of the US Dollar (USD) and determine a short-term positive or negative trend. A hawkish view is considered bullish for USD, whereas a dovish view is considered negative or bearish.
Read more.
Next release:
Wed May 07, 2025 18:00
Frequency:
Irregular
Consensus:
–
Previous:
–
Source:
Federal Reserve
When will the Fed announce its interest rate decision and how could it affect EUR/USD?
The US Federal Reserve is scheduled to announce its interest rate decision and publish the monetary policy statement on Wednesday at 18:00 GMT. This will be followed by Fed Chairman Jerome Powell’s press conference starting at 18:30 GMT.
Investors will pay close attention to how the Fed and Chairman Powell assess the latest economic developments. Although the April employment report showed that conditions in the labor market remain relatively healthy, the Bureau of Economic Analysis reported in its flash estimate that the US’ Gross Domestic Product (GDP) contracted at an annual rate of 0.3% in the first quarter.
In case the Fed acknowledges a heightened risk of a recession and its potential negative impact on hiring, investors could see that as a dovish language. In this scenario, the US Dollar (USD) could come under renewed selling pressure. On the other hand, investors could refrain from pricing in a rate cut in June and help the USD outperform its rivals, if the Fed downplays growth concerns and implies that it will remain patient about policy adjustments while waiting to see how tariffs will impact inflation.
Eren Sengezer, European Session Lead Analyst at FXStreet, provides a short-term technical outlook for EUR/USD:
“The near-term technical outlook points to a loss of bullish momentum, with the Relative Strength Index (RSI) indicator on the daily chart retreating toward 50. Additionally, EUR/USD trades near the 20-day Simple Moving Average (SMA) after holding comfortably above this level throughout April.”
“On the downside, the Fibonacci 23.6% retracement level of the uptrend that started in January forms key support at 1.1200. In case EUR/USD makes a daily close below this level and starts using it as resistance, technical sellers could remain interested, opening the door for an extended slide toward 1.1015-1.1000 (Fibonacci 38.2% retracement, round level, 50-day SMA) and 1.0860 (Fibonacci 50% retracement). Looking north, interim resistance could be spotted at 1.1440 (static level) before 1.1520 (end-point of the uptrend) and 1.1600 (round level, static level).”
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
(This story was corrected on May 7 at 11:13 GMT to say, in the first bullet and the first paragraph, that the Fed is expected to hold interest rates steady for a third consecutive meeting, not a fourth.)
