Synopsis:
CIBC sees no surprises in today’s May FOMC outcome, with the Fed holding rates steady. However, the statement reflects growing concern over aggressive trade policy and its stagflationary implications. The Fed remains in wait-and-see mode, with CIBC expecting the first rate cut in September.
Key Points:
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No rate change: The Fed left the funds rate unchanged, as widely expected.
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Trade policy shift: More aggressive tariff strategy acknowledged in the statement, increasing stagflation risks.
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Economic performance: US economy and labor market remain resilient, but inflation remains sticky.
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Policy uncertainty: Fiscal and regulatory plans from the Trump administration remain unclear, clouding the macro outlook.
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Forward guidance muted: Powell offered limited forward guidance given elevated policy uncertainty.
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Rate cut forecast: CIBC expects the first rate cut in September, assuming easing trade tensions, with two cuts total in 2025.
Conclusion:
CIBC views today's Fed hold as expected, but the evolving risk backdrop—especially on trade—raises the likelihood of policy easing later this year, with September penciled in for the first cut.
