Balancing Risks on the Rise—What to Watch Next?

May 12, 2025

The Federal Open Market Committee (FOMC) met last week for the first time since reciprocal tariffs were announced. The Federal Reserve held rates steady at the target range of 4.25%-4.50% as anticipated. The last rate cut occurred at the Fed’s December meeting with a total of 100 basis points or 1% worth of cuts since September 2024.

Statement on Economic Outlooks

The noteworthy highlights of the FOMC meeting were the committee’s post meeting statement and Fed Chairman Jerome Powell’s press conference. Fed officials noted in their statement uncertainty surrounding the economic outlook has increased. Risks of higher unemployment and higher inflation have risen. With the increased uncertainty, Fed members chose to utilize a wait and see approach at this meeting.

Powell reaffirmed the Fed’s goal of balancing the dual mandate of full employment and stable prices. Despite the elevated uncertainty, he believes the Fed is in a good position to be patient and make moves when needed. The current state of the economy enables the Fed to employ a patient yet agile approach. The labor market remains in a solid position and personal consumption expenditures (PCE) inflation has continued its path towards the 2% target. Future economic data will depend on how tariff policy settles out, but Powell appears comfortable with the Fed’s current monetary positioning.   

Expectations for the Next Fed Meeting

The next Fed meeting (June 17-18) should help to shine light on the Fed’s expectations for monetary policy amid this uncertainty. The markets are currently pricing in a roughly 20% chance of a rate cut following Powell’s remarks about remaining patient. The FOMC will also release the Summary of Economic Projections (SEP). Projections include economic growth (GDP), unemployment rate, and PCE inflation. These will show how officials view the impacts of tariffs. A dot plot of Fed officials’ judgement of the appropriate targe range for the federal funds rate will also be released. This will provide their latest outlook on future rate cuts.

Uncertainty will remain a constant as we progress. Investors who remain diligent and broadly diversified are rewarded in times of market volatility. Focusing on your long-term financial goals is essential. Reach out to your advisor if you would like to review your portfolio. Your financial success matters.