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FOMC Preview: No Change to Fed Funds Rate
Most analysts expect no change to FOMC policy at the meeting this week, keeping the target range at 4 1/4 to 4 1/2 percent. Market participants currently expect the FOMC to also be on hold at the June meeting, with the next rate cut in July, and one or two more rate cuts later in the year.From BofA: The May FOMC meeting looks like a placeholder: policy rates on hold and no change in Chair Powell’s tone from his recent speeches. He will probably reiterate that the Fed is assessing the total impact of all policy changes by the Trump Administration, not just trade policy in isolation. We think the bar for a June cut is high, but Powell is unlikely to rule it out at this stage. emphasis addedProjections will NOT be released at this meeting. For review, here are the March projections. The FOMC participants’ midpoint of the target level for the federal funds rate is now at 4.0% at the end of 2025 (3.9%-4.4%) and the long run range is 2.6% to 3.6%. This is fewer rate cuts than market participants expect.Since the last projections were released, economic growth has been below expectations (but distorted), the unemployment rate was close to expectations, and inflation at expectations.The BEA's advance estimate for Q1 GDP showed real growth at -0.3% annualized. There is a wide range of estimates for Q2 GDP, but it is forecast to be close to 2.0%. That would put real growth for Q1 over Q1, at 1.8% - in the range of the March FOMC projections for Q4 over Q4. However, Q2, Q3 and Q4 all saw solid growth last year - and we haven't seen the impact of policy changes on hard data yet - so it is likely Q4 over Q4 GDP will be below the March forecast range. GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 Projection Date202520262027 Mar 20251.5 to 1.91.6 to 1.91.6 to 2.0Dec 20241.8 to 2.21.9 to 2.11.8 to 2.0 1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated. The unemployment rate was at 4.2% in April and after averaging 4.1% for Q1. The forecast for the Q4 unemployment rate is likely low. Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2 Projection Date202520262027 Mar 20254.3 to 4.44.2 to 4.54.1 to 4.4Dec 20244.2 to 4.54.1 to 4.44.0 to 4.4 2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. As of March 2025, PCE inflation increased 2.3 percent year-over-year (YoY). There will likely be some increase in PCE inflation from policy, but this appears to in the forecast range.Without policy changes (tariffs) it appears inflation would be below the FOMC forecast! Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1 Projection Date202520262027 Mar 20252.6 to 2.92.1 to 2.32.0 to 2.1Dec 20242.3 to 2.62.0-2.22.0 PCE core inflation increased 2.6 percent YoY in March. This is in the range of FOMC projections for Q4. Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 Projection Date202520262027 Mar 20252.7 to 3.02.1 to 2.42.0 to 2.1Dec 20242.5 to 2.72.0-2.32.0
Most analysts expect no change to FOMC policy at the meeting this week, keeping the target range at 4 1/4 to 4 1/2 percent. Market participants currently expect the FOMC to also be on hold at the June meeting, with the next rate cut in July, and one or two more rate cuts later in the year.
From BofA:
The May FOMC meeting looks like a placeholder: policy rates on hold and no change in Chair Powell’s tone from his recent speeches. He will probably reiterate that the Fed is assessing the total impact of all policy changes by the Trump Administration, not just trade policy in isolation. We think the bar for a June cut is high, but Powell is unlikely to rule it out at this stage.
emphasis added
Projections will NOT be released at this meeting. For review, here are the March projections.
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
The unemployment rate was at 4.2% in April and after averaging 4.1% for Q1. The forecast for the Q4 unemployment rate is likely low.
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
As of March 2025, PCE inflation increased 2.3 percent year-over-year (YoY). There will likely be some increase in PCE inflation from policy, but this appears to in the forecast range.
PCE core inflation increased 2.6 percent YoY in March. This is in the range of FOMC projections for Q4.
The FOMC participants’ midpoint of the target level for the federal funds rate is now at 4.0% at the end of 2025 (3.9%-4.4%) and the long run range is 2.6% to 3.6%. This is fewer rate cuts than market participants expect.
Since the last projections were released, economic growth has been below expectations (but distorted), the unemployment rate was close to expectations, and inflation at expectations.
The BEA's advance estimate for Q1 GDP showed real growth at -0.3% annualized. There is a wide range of estimates for Q2 GDP, but it is forecast to be close to 2.0%. That would put real growth for Q1 over Q1, at 1.8% - in the range of the March FOMC projections for Q4 over Q4.
However, Q2, Q3 and Q4 all saw solid growth last year - and we haven't seen the impact of policy changes on hard data yet - so it is likely Q4 over Q4 GDP will be below the March forecast range.
| GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 | ||||
|---|---|---|---|---|
| Projection Date | 2025 | 2026 | 2027 | |
| Mar 2025 | 1.5 to 1.9 | 1.6 to 1.9 | 1.6 to 2.0 | |
| Dec 2024 | 1.8 to 2.2 | 1.9 to 2.1 | 1.8 to 2.0 | |
The unemployment rate was at 4.2% in April and after averaging 4.1% for Q1. The forecast for the Q4 unemployment rate is likely low.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2 | ||||
|---|---|---|---|---|
| Projection Date | 2025 | 2026 | 2027 | |
| Mar 2025 | 4.3 to 4.4 | 4.2 to 4.5 | 4.1 to 4.4 | |
| Dec 2024 | 4.2 to 4.5 | 4.1 to 4.4 | 4.0 to 4.4 | |
As of March 2025, PCE inflation increased 2.3 percent year-over-year (YoY). There will likely be some increase in PCE inflation from policy, but this appears to in the forecast range.
Without policy changes (tariffs) it appears inflation would be below the FOMC forecast!
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2025 | 2026 | 2027 | |
| Mar 2025 | 2.6 to 2.9 | 2.1 to 2.3 | 2.0 to 2.1 | |
| Dec 2024 | 2.3 to 2.6 | 2.0-2.2 | 2.0 | |
PCE core inflation increased 2.6 percent YoY in March. This is in the range of FOMC projections for Q4.
| Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2025 | 2026 | 2027 | |
| Mar 2025 | 2.7 to 3.0 | 2.1 to 2.4 | 2.0 to 2.1 | |
| Dec 2024 | 2.5 to 2.7 | 2.0-2.3 | 2.0 | |
