FOMC Meeting: Key Takeaways

May FOMC meeting | May 7, 2025

The Federal Open Market Committee (FOMC or the Committee) left the federal funds rate unchanged at 4.25% – 4.50% for the third straight meeting, continuing a pause on the interest-rate-cutting cycle that started in September 2024. The FOMC stated that uncertainty about the economic outlook has increased further and that the risks of higher unemployment and inflation have also risen. The Federal Reserve (Fed) will continue with the pace of decline of its securities holdings, $5 billion of U.S. Treasury securities and $35 billion on agency mortgage-backed securities each month.

• Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.
• In support of its goals, the Committee decided to keep the federal funds rate unchanged at 4.25%-4.50%. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate (price stability and full employment) and judges that the risks of higher unemployment and higher inflation have risen.

• In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook.
• The Committee will continue to take into account a wide range of information including readings on labor market conditions, inflation pressures, inflation expectations, and financial and international developments.

• No change in the federal funds rate at today’s meeting was expected by markets. The U.S. Treasury market was little changed after the release of the announcement.
• We believe the Fed wants to maintain flexibility on when to deploy further interest rate cuts. In our view, the Fed will remain on hold until economic data begins to confirm the slow-down story. We believe the Fed will have the opportunity to cut rates later in the year if the economic slowdown materializes and as long as inflation allows.
• The threat of having both inflation and unemployment rising simultaneously continues to create a big headache for the Fed’s interest policy. There is still a possibility where the federal funds rate could remain on hold at current levels in the near-term especially if inflation remains sticky. Under this level of uncertainty, we believe fixed-income investors may benefit from being exposed to the intermediate portion of the curve (3-7 year maturities), striking the best balance between attractive yield and less sensitivity to potential interest rate risk.

• June 18* | July 30 | September 17* | October 29 | December 10*
  

  *Indicates the meeting is associated with a summary of economic projections. In addition, every meeting will be accompanied by a press conference.

Forecasts and targets are based on certain assumptions and on views of market and economic conditions which are subject to change.

All investing involves risks including the possible loss of principal. Investments in fixed-income securities are subject to interest rate, credit/default, liquidity, inflation, and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond’s price. Credit risk is the risk that an issuer will default on payments of interest and principal. This risk is higher when investing in high yield bonds, also known as junk bonds, which have lower ratings and are subject to greater volatility. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.

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