Powell is Expected to Push Back Against Calls to Cut Interest Rates This Week

Federal Reserve Chair Jerome Powell is expected to hold firm against growing calls for interest rate cuts when he speaks at his press conference on Wednesday, despite pressure from both the White House and Wall Street, according to several economists.

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The strong April jobs report has shifted the narrative, showing little evidence of weakness in the labor market and challenging the idea that the economy is faltering. This solid employment data has given the Fed room to take a cautious stance and observe how economic conditions evolve, particularly in light of the Biden administration's ongoing tariff strategy.

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Scott Anderson, chief U.S. economist at BMO Capital Markets, told clients in a note that there was nothing in the recent jobs data that would prompt the Fed to suddenly cut rates. “There’s no reason for the Fed to jump off the sidelines and act next week,” he said.

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For investors hoping Powell might offer a timeline or hint at when the Fed could begin lowering rates, economists warn not to expect much clarity. That’s largely because the central bank itself remains uncertain about the path forward.

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What makes the current situation more complicated is the combination of rising prices, a tight labor market, and slowing economic momentum. Economists refer to this blend of conditions as “stagflation” — a rare and difficult mix of inflation, unemployment, and stagnation that poses unique challenges for monetary policy. It’s a scenario the U.S. hasn’t faced in decades, and it leaves the Fed in a bind.

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According to Joe Brusuelas, chief economist at RSM, the Fed won’t even consider cutting rates until there’s clear evidence that inflation has peaked, especially after any potential effects of tariffs play out. “They need to be absolutely sure,” he said in an interview. In addition, he noted that real weakness in the labor market — such as significant job losses — would also be required for the Fed to feel comfortable taking action.

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Brusuelas added that while rate cuts have historically helped the economy during downturns, cutting rates while inflation is still rising could actually make the situation worse. “It would only deepen the stagflation,” he warned.

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The Fed’s policy-setting committee is set to meet on Tuesday and Wednesday, with widespread expectations that interest rates will remain unchanged in the current range of 4.25% to 4.5%. Powell will hold a press conference Wednesday at 2:30 p.m. Eastern time to explain the decision and provide guidance on the Fed’s outlook.

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For clues about what Powell might say, economists are looking back at a speech he delivered on April 16. Brett Ryan, an economist at Deutsche Bank, believes Powell will likely stick closely to the themes of that speech, particularly his cautious tone regarding inflation and unemployment.

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“In that speech, Powell made it clear the Fed is in no rush to act,” Ryan said. The Fed Chair emphasized that inflation would carry more weight in the central bank’s decision-making going forward, noting that a strong labor market cannot be sustained if inflation remains unanchored.

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“Our job is to keep long-term inflation expectations well-anchored and ensure that a one-time jump in prices doesn’t evolve into a lasting problem,” Powell stated at the time.

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While the unemployment rate has ticked up, it remains relatively low at 4.2% — a level the Fed still views as healthy. That makes the case for an immediate rate cut less compelling, unless inflation cools or labor market conditions deteriorate sharply.

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Looking ahead, traders in the derivatives market are anticipating three rate cuts before the end of the year. Brusuelas believes the right conditions for a cut could emerge in the second half of 2025. He’s predicting two cuts overall but isn’t tied to any specific meeting for them to start.

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Deutsche Bank’s Brett Ryan expects the first rate cut will likely come in December. He argues that because inflation risks are still elevated, the Fed doesn’t have the flexibility to pre-emptively ease rates. While Deutsche Bank is not forecasting a recession, it does see the U.S. economy experiencing very weak, nearly flat growth.

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Meanwhile, BMO’s Scott Anderson thinks the Fed might have enough evidence to justify a rate cut by July, especially if inflation shows convincing signs of easing. However, he admits it’s a close call. “It’s a big ‘if,’” he said. Anderson also isn’t forecasting a recession but believes the economy is teetering close to one. “We’re about as close as you can get to a recession call without actually making one,” he said.

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Even some of the Fed’s more dovish members remain cautious. Fed Governor Christopher Waller, known for supporting looser monetary policy, recently suggested a rate cut is unlikely before July. “There’s just not going to be enough data in the next couple of months,” he said.

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Overall, while the market is eager for rate relief, the Fed appears poised to wait, watch, and only act when there's undeniable proof that inflation is under control and the labor market is weakening significantly. Until then, Powell’s message on Wednesday will likely be one of caution, not action.

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