Fretting About the Fed

Market Musings 5/5/2025

Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!

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Markets finally snap its 9-day green streak, but what are investors worrying about?

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Markets end Monday lower as investors gear up for the next Fed meeting. It’s Fed week…

So, what’s on tap?

First, investors aren’t expecting #RateCuts this meeting.

Odds are very high for the Fed to just stay put…

However, investors are worried how the White House will respond. Before the rally, just a few weeks ago, markets were falling as the White House criticized Powell and the Fed for not cutting rates. The White House was threatening to remove Powell. While no #RateCuts are expected, markets are bracing for the feud to potentially kick up again.

However, investors ARE expecting #RateCuts by July－that’s in two more meetings.

While the Fed won’t just come out and say they’re looking to cut soon, investors will still be looking for signal that the Fed is getting ready to move. The Fed had recently been promoting a “wait and see” stance highlighting strong #LaborMarkets as rationale to wait and give #Inflation more time to show progress.

Now, while the investors will point to the most recent March #Inflation data’s deceleration, it’s only a month after several months of acceleration and really before any #Tariffs which still remain in flux. In addition, April’s #LaborMarkets data was strong and could give the Fed more breathing before having to make a decision. We could see markets sour a bit if the Fed doesn’t signal it could be ready to move on #RateCuts soon with a couple more months of data.

Finally, March’s dot plot forecast was expecting about two #RateCuts this year.

What probably got Powell in trouble with the White House a few weeks ago was commenting that the magnitude of the #Tariffs were well beyond the Fed’s worst case expectations. He also warned of higher #Inflation and slower economic growth.

While there won’t be a new dot plot this meeting, we could see the prior forecast as too optimistic now and the Fed may have shifted to be a bit more hawkish since. Any signal for #RateCuts to be delayed or pushed out will likely disappoint the market.

In addition, any more commentary on #Tariffs impact, higher #Inflation or economic slowdown could also agitate a combative White House leading to more market volatility.

So, TLDR…

The Fed likely holds #RateCuts flat and offers fairly vague commentary about waiting on more economic data from #Tariffs, #Inflation and #LaborMarkets. Meanwhile, investors will attempt to interpret every pause, head scratch and vocal intonation for signal.

We’ll see on Wednesday if markets get the secret wink they’re looking for.