What's Next for Interest Rates, Inflation?

The Fed’s May meeting was pretty much a humdrum event. Even Fed Chair Powell's post-meeting press conference was uneventful.

“We are always going to do the same thing,” he said.

“We are going to use our tools to foster maximum employment and price stability for the benefit of the American people. We are always going to consider only the economic data, the outlook, the balance of risks and that’s it. That’s all we are going to consider.”

Did You Know–The cost of shelter is not included in the Harmonized Index of Consumer Prices (HICP), Europe’s version of the Consumer Price Index (CPI). Without housing costs, the U.S. core consumer price index in April would have been 1.8 percent on a year-over-year basis. 

But what lies ahead for short-term interest rates? As the table shows, traders see the Fed adjusting rates three times in 2025, with the first move coming as early as July.

The Fed is engaging in a balancing act between managing inflation and supporting economic growth. As we move through the next few months, we may see which side tips the balance.

^Sources:

^{FSInsight.com, May 2, 2025. “First Word”}

^{CMEGroup.com, May 8, 2025}