Powell to defy White House and market expectations appear “overly aggressive” for 2025

The Federal Reserve appears dead set to keep policy unchanged on Wednesday, with chair Powell set to defy pressure from the White House and signal that the FOMC is in no rush to lower rates again. President Trump’s tariffs have added considerable uncertainty to the path ahead for US rates. While the growth outlook has undoubtedly worsened, the resilience of the labour market and the significant inflationary pressures brought about by the tariffs suggests that the Fed will adopt a more balanced approach to policy.

We think that Powell will highlight the sharp jump in inflation expectations since “Liberation Day”, while emphasising that anchoring these expectations is the Fed’s primary objective. Futures markets are still pricing in around 80 basis points of FOMC cuts this year, although this seems overly aggressive, with officials likely to largely look through a shallow recession in favour of keeping US inflation in check.