The U.S. Federal Reserve’s interest rate policy has once again become the focal point of global markets.After keeping rates steady at the last two meetings, the Fed has now begun signaling potential cuts.A slowdown in inflation, a drop in the pace of economic growth, and public calls from President Trump have strengthened expectations of a rate cut.Markets broadly expect no change at the May meeting, but anticipate that cuts could begin as early as June.
Signals Point to June
Cleveland Fed President Beth Hammack said that the May meeting would be too early for a rate cut, while highlighting June as a key threshold.If the relative decline in inflation continues and the slowdown in economic activity deepens, rate cuts are expected to be on the agenda at the June 17–18 meeting.
This expectation has already been reflected in the markets.Interest rate futures are now pricing in a 25 basis point cut in June.The Fed’s continued emphasis on “economic activity remaining strong” signals that they will time the move with caution.
Trump Increases Pressure
U.S. President Donald Trump has intensified his calls for rate cuts.In a White House statement, he said,“Overall prices are falling, energy prices are declining. I hope the Fed lowers rates,” delivering a direct message.
Trump’s bid for re-election increases the risk of the Fed’s rate policy becoming more politicized.Especially a White House looking to boost economic activity may see inflation nearing the 2% target as sufficient justification for a rate cut.
Gold, Bonds, and Market Reactions
Markets have already started pricing in expectations.Gold has reached its highest levels in recent times.Rate cut expectations are pulling down bond yields, while interest in risk assets is once again rising.Recovery signals are also visible in Bitcoin and the Nasdaq.
Investors Watching June Closely
No changes are expected in May, but June represents a critical turning point for the Fed.The direction of inflation and other economic data suggest that rate cuts may not be far off.The Fed is likely to enter the summer of 2025 with a rate cut.As the economy starts signaling a rebound, this move could define the new trajectory for financial markets.
