On the evening of May 7, 2025, the U.S. Federal Reserve (Fed) kept its policy rate steady at the 4.25–4.50% range. However, what markets were really curious about were the statements made by Fed Chair Jerome Powell following the meeting. Powell, in a cautious yet optimistic tone, signaled the beginning of a new era in monetary policy.
Emphasis on "Data-Driven Flexibility" Instead of "Wait and See"
Powell stated that the U.S. economy remains strong but noted that upward risks persist on both the inflation and unemployment fronts. He emphasized that despite the slowdown in inflation, concerns about its persistence continue. Nevertheless, he delivered a message of flexibility in monetary policy: he said the Fed will continue to evaluate its decisions in light of current data. This statement keeps the possibility of a rate cut at the June meeting alive.
Laying the Groundwork for June
A recent statement by Cleveland Fed President Beth Hammack, saying "May is too early, but June is seriously on the table," aligns with Powell's message. Market pricing has also taken shape in this direction. Interest rate futures indicate that a 25 basis point cut in June has gained significant probability.
Dynamics Between the Trump Administration and the FedPowell, in response to President Trump's explicit calls for a rate cut, emphasized the Fed’s independence. By saying “We base our decisions on data and analysis,” he maintained a balanced stance against political pressure. Still, it appears that the Trump administration expects a rate cut to support growth as inflation declines. This political pressure is one of the factors increasing market expectations for June.
Markets and Risk Assets Gain StrengthThere was no sharp correction in markets following the Fed’s decision to hold rates steady. On the contrary, with uncertainty diminishing and expectations of easing in the summer, risk appetite has increased. Gold tested the $3,300 level. A recovery trend was observed in Bitcoin and tech stocks. Especially the retreat in bond yields shows that investors are repositioning.
Powell Cautious, Market HopefulPowell’s remarks suggest that the Fed may be creating room to maneuver for a rate cut in the summer. Even if May was a pause, a clear “preparation period” atmosphere has formed for the June meeting. If the downward trend in inflation continues and more signs of slowing growth emerge, summer 2025 could begin with a rate cut.Balances in the economy remain delicate, but the Fed’s clear messaging is being seen as a positive step for markets.
