Powell Steals the Show at Fed Meeting—Rates Take Backseat

Markets braced for rate drama—got a Powell performance instead. The Fed chair’s commentary overshadowed policy decisions, proving central banking is still a personality contest.

Key takeaways: No surprises on rates, but Powell’s tone moved markets more than the actual decision. Classic finance—where optics trump fundamentals.

Bonus jab: At least crypto markets react to code, not carefully crafted Fed whispers.

No change expected, but all eyes on Powell

According to the first-quarter GDP data released last week, there was a 0.3% contraction in real economic growth, which was not much of a surprise to economists who expected US President Donald Trump’s policies to bring down spending.

Yet, April saw a 177,000 nonfarm payroll employment increase that could have given Powell and central bankers more reason to maintain borrowing rates. 

“The chaos of U.S. tariff policy leaves the future macroeconomic landscape especially challenging to discern,” said Erik Weisman, chief economist at MFS Investment Management. Powell, he added, is almost certain to maintain a cautious “wait-and-see” stance.

This week’s meeting will be Powell’s first major public appearance since new tariffs introduced by the Trump administration began taking effect. The US president slapped a 145% duty on certain Chinese imports ignoring the cries of retailers who believe the cost of these taxes will be passed on to American consumers.

Several analysts like Torsten Slok, chief economist at Apollo, said market expectations are all pointing towards a US-based stagflation. 

“Consensus expectations for growth have been revised down, and expectations for inflation have been revised up. This is the definition of stagflation.”

The Federal Reserve has so far described the inflation caused by tariffs as “transitory,” meaning it expects price increases to be short-lived. Still, some officials are concerned that inflation expectations could become “unanchored” if the price pressures continue clouding the economy into Q3 2025.

Trump piles the pressure on Powell to cut rates

President Donald Trump still wants Powell and the central bank to lower interest rates and will certainly want the cut to come in July if not today.

CME FedWatch data shows just a 3% chance of a rate cut this week, but the probability increases to about 31% for the Fed’s June meeting and 80% by July. Still, some economists believe rate cuts won’t come until much later in the year.

Ryan Sweet, chief US economist at Oxford Economics, said his firm anticipates the Fed will hold rates steady until December, when inflationary pressures may begin to recede and labor market conditions could worsen.

Bill English, former senior Fed economist and professor at the Yale School of Management told CBS News that the Fed will not react because “they don’t know exactly how tariffs will impact consumers or businesses.”

“I’d be interested to know how Powell is feeling about the balance of risks at this point,” English added, “I’d be surprised if he signaled anything strongly either way.” 

Scott Helfstein, head of investment strategy at Global X, provided an insightful summary of the Fed’s dilemma. “The Fed and investors find themselves in a no man’s land waiting to see whether economic policies drive prices higher and growth lower,” he said.

“There isn’t a good reason to change rates at this point, and the Fed is likely to reiterate the need for more data,” Helfstein concluded.

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