Synopsis:

Barclays expects no change in Fed policy at the May FOMC meeting, with Chair Powell likely to emphasize patience amid elevated uncertainty, recent inflation upticks, and weakened household and business sentiment. The FOMC is expected to signal caution but maintain a restrictive bias to keep longer-term inflation expectations anchored.

Key Points:

• No rate change expected:
  Fed funds rate to remain at 4.25–4.50%, as the FOMC awaits more clarity on economic and inflation developments.

• Acknowledgment of uncertainty:
  Statement and Powell likely to highlight:

  • Rising near-term inflation expectations

  • Deterioration in consumer and business sentiment

  • Elevated policy and trade-related uncertainty

• Guidance to remain cautious:
  Powell expected to:

  • Reiterate a data-dependent and balanced approach

  • Emphasize anchoring long-term inflation expectations

  • Note the FOMC’s approach if dual mandates (inflation vs employment) come into conflict

• Baseline forecast:
  Barclays anticipates two 25bp rate cuts in 2025 (July and September), and two more in 2026, but expects policy to remain mildly restrictive to ensure inflation returns to target without triggering deeper economic damage.

Conclusion:

The May FOMC meeting should reinforce a wait-and-see stance, balancing inflation vigilance with growing concerns about weakening sentiment. While cuts are expected later this year, the Fed will avoid any signals of urgency this week, instead stressing its commitment to inflation control and policy flexibility.