Fed Rate Cut Odds Drop 29% Points Amid Tariff Turmoil

Investors have scaled back their expectations for a Federal Reserve interest rate cut in May, following recent tariff-related market turmoil. Fed funds futures markets now indicate a 16% probability of a 25 basis points cut next month, a significant decrease from the 45% chance priced in just a week ago. This shift in sentiment comes as Federal Open Market Committee (FOMC) members have begun to voice their opinions on the matter.

Fed Governor Chris Waller recently commented that the inflationary effects of tariffs could be temporary. He also noted that if the economy slows down too much, the FOMC would likely cut rates sooner. This statement aligns with the Fed's cautious approach to Trump's trade policies, as indicated by Chair Jerome Powell earlier this month. Powell stated that the central bank plans to adopt a "wait-and-see" approach, given the frequent changes in tariff rates.

Powell's remarks came days after Trump's announcement of new tariffs, which he dubbed "Liberation Day." Trump has publicly criticized Powell for being slow to react, urging the Fed to lower rates more promptly. Despite the president's calls for action, the Fed remains committed to its data-driven approach, awaiting greater clarity on the economic impacts of the tariffs before making any policy adjustments.

Looking ahead, several FOMC members are scheduled to speak in the coming days. Governor Lisa Cook will address an event in Washington this evening, followed by Chair Powell on Wednesday and Governor Michael Barr on Thursday. These speeches may provide further insights into the Fed's stance on monetary policy in the face of ongoing trade tensions.