Trends & Tides – US FOMC May 2025
The US Federal Open Market Committee (FOMC) kept the Federal Funds Rate steady at 4.25%-4.50% in the May 2025 meeting. In the post-policy press conference, Federal Reserve Chair Jerome Powell stated that the effect of tariff hikes on the US economy remains highly uncertain, but if the announced increases were to be sustained, they would impact inflation. The FOMC statement flagged stagflation risks, noting that the risks of higher unemployment and elevated inflation have increased.
The US economic activity is losing momentum due to import tariffs and erratic policymaking, leading to a sharp rise in economic uncertainty. US GDP growth forecasts for 2025 have also been revised downwards, from 2.3% in March 2025 to 1.4% by May 2025. However, the FOMC statement noted that economic activity has continued to expand at a solid pace despite the recent drag from net exports.
The recent US inflation prints have been encouraging, printing in line with or below the market expectations. The US CPI inflation eased to 2.4% in March 2025, the lowest since September, down from 2.8% in February. Core inflation eased to 2.8%, the lowest since March 2021. As measured by the 5-year breakeven inflation rate, market expectations of inflation have also come down as growth risks outweigh the potential inflationary impact of import tariffs.
The US labour market remains resilient with healthy payroll additions and a steady unemployment rate. However, signs of gradual easing are emerging, with a continuous decline in job openings and a moderation in earnings growth. The FOMC statement also noted that the unemployment rate has stabilised at a low level and labour market conditions remain solid.
Consumer surveys point to emerging risks of stagflation, as consumer sentiment sinks while inflation expectations surge. Meanwhile, the Dollar Index (DXY) has weakened, while Treasury yields remain elevated as investors reassess the US’s safe-haven status. Currently, markets anticipate 75 bps of rate cuts by the end of 2025.
