Synopsis:

ANZ expects the Federal Reserve to hold rates steady at the May FOMC meeting and throughout Q2. While elevated inflation uncertainty and tariff-related risks will keep the Fed cautious for now, ANZ sees rate cuts resuming in Q3 as growth weakens.

Key Points:

• May FOMC Preview:

  • No change expected to the federal funds rate

  • Fed to maintain a wait-and-see approach amid inflation volatility

• Inflation Outlook:

  • Uncertainty surrounding tariff pass-through to core inflation is a key concern

  • Tariffs are expected to raise input costs, but weak demand may limit final price inflation

  • Fed will likely need more clarity on the magnitude and persistence of inflation impacts

• Policy Path:

  • ANZ sees the Fed on hold through Q2

  • Expects rate cuts to resume in Q3 as economic growth slows and disinflation pressures build

Conclusion:

ANZ believes the Fed will stay patient at the May meeting due to lingering inflation risks and tariff uncertainty. However, the outlook for slower growth and softer demand supports their call for a resumption of easing in the second half of 2025.