FED - Patience remains key

Patience remains key

As with financial markets, we anticipate that the Federal Reserve (Fed) will maintain its monetary status quo in May, in response to uncertainties over protectionism and trade war.

Our expectations are as follow:

• Interest Rate Stability: It is widely expected that the Federal Reserve will maintain its target rate on hold at the upcoming Federal Open Market Committee (FOMC) meeting on May 6-7 in a range between 4.25% and 4.50%.  Current economic indicators do not support a rate cut: Although the US economy contracted in Q1 2025, the decline was mainly driven by a surge in imports, while final sales to domestic purchasers – an indicator of underlying domestic demand – remain robust. Moreover, the labor market remains strong and inflation remains above the Fed's 2% target.
• Press Conference: Federal Reserve Chairman Jerome Powell is expected to reiterate that US monetary policy is currently well positioned to respond to evolving macroeconomic indicators. This cautious stance allows the FOMC to wait for more clarity on the implications of Donald Trump's new policies, particularly in the areas of trade, fiscality, regulation and immigration.
• Flexibility and data dependency: Jerome Powell will stress that the Federal Reserve is in no rush to cut rates except in the event of an unexpected deterioration in the job market or lower than expected inflation.

In conclusion, we expect the US Federal Reserve will reaffirm its “wait and see” stance, while maintaining a firm tone on monetary policy. This strategy aims to anchor long term inflation expectations and uphold the institution’s credibility. In the absence of any change in the Fed's communication and immediate adjustment to policy rates, this meeting is unlikely to be a major event for financial markets, according to our analysis.

This commentary is provided for information purposes only. The opinions expressed by La Française are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Finance Services, registered office at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, n° 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 boulevard Raspail, 75006 Paris is a management company approved by the Autorité des marchés financiers under number GP 97138 and registered with ORIAS (www.orias.fr) under number 25003045 since 11/04/2025. Société Anonyme with a capital of €3871680, RCS Paris n° 388,555,021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.