Why the Fed’s Comments Today Matter More Than the Rate Decision

On May 7, 2025

May 7, 2025

Markets widely expect the U.S. Federal Reserve to hold interest rates steady today — but all eyes are on what they say, not what they do.

According to CME Group data, there’s a 95%+ chance that rates will remain in the current 4.25%–4.50% range. That’s not the surprise. The real story is how the Fed interprets recent economic shifts — and what signals it sends for the months ahead.

June Expectations Are Shifting

While today’s decision is seen as a lock, expectations for June are more divided. Roughly 70% of traders expect rates to remain unchanged, but nearly 30% are betting on a cut.

Those odds moved significantly after last week’s data showed surprising labor market strength:

Unemployment held steady at 4.2%
177,000 non-farm payroll jobs were added in April

At the same time, the U.S. economy shrank by 0.3% in Q1 — a mild contraction driven largely by a spike in imports, rather than weak domestic demand.

This has left investors wondering: Is the Fed more concerned about growth or inflation?

What to Watch in Today’s Fed Statement

The markets will scrutinize every word of the Fed’s commentary. Key areas of focus include:

Tariffs and Trade Tensions: Will the Fed acknowledge the impact of tariffs on growth and inflation?
Q1 Economic Contraction: How does the Fed interpret the recent dip in GDP?
Labor Market vs. Inflation: Does the Fed prioritize strong employment or lingering inflation concerns?
Inflation Outlook: Any updates here could reshape expectations for the rest of the year.

Even with a rate hold today, markets could swing if the Fed drops any hints about future moves.

Rate Cut Odds by Year-End

As of now, markets are pricing in three rate cuts by the end of 2025. But there’s still a sizable minority — about 27% — who believe the Fed may cut only once, twice, or not at all.

These expectations are fluid and highly sensitive to Fed guidance.

How Could Markets React?

If the Fed highlights economic risks and softens its tone, rate cut expectations could rise → likely weakening the dollar and boosting gold.
If it underscores labor market resilience and inflation risks, fewer cuts could be priced in → likely strengthening the dollar and putting pressure on gold.
If the Fed walks a tightrope between the two, expect volatility.

Don’t Forget the Trade Story

Markets are also tracking U.S.-China trade talks. Developments here could rival or even outweigh the Fed in driving sentiment.

There’s growing optimism about renewed negotiations. A meeting is expected later this week in Switzerland between top U.S. and Chinese officials.

President Trump also announced a high-level review of potential trade agreements within the next two weeks.

Bottom Line

While the rate decision itself may hold no surprises, the Fed’s tone, inflation outlook, and comments on trade will set the stage for how markets move next. Traders and analysts alike would be wise to read between the lines.