Why Today’s Fed Comments Are More Important Than the Rate Decision

Last updated May 7, 2025

Markets widely expect the U.S. Federal Reserve to keep interest rates unchanged today, but the real focus is on the Fed’s message, not the decision itself.

According to CME Group data, there is over a 95% chance that rates will stay within the current 4.25%–4.50% range. This is no surprise. What truly matters is how the Fed interprets recent economic developments and what guidance it offers for the months ahead.

Shifting Expectations for June

While today’s rate decision is seen as certain, expectations for June are less clear. Around 70% of traders predict no change in June, while nearly 30% are betting on a rate cut.

These probabilities shifted dramatically after last week’s data revealed unexpected 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 contracted by 0.3% in Q1, a mild decline driven primarily by a surge in imports rather than weak domestic demand. This mix of strong employment but shrinking GDP has left investors questioning the Fed’s primary concern: is it more focused on growth or inflation?

What to Watch in Today’s Fed Statement

Investors will be analyzing the Fed’s comments closely, particularly looking for insights on:

Tariffs and Trade Tensions: Will the Fed address the impact of tariffs on growth and inflation?
Q1 Economic Contraction: How does the Fed interpret the recent decline in GDP?
Labor Market vs. Inflation: Is the Fed more concerned about strong employment or lingering inflation risks?
Inflation Outlook: Any updates could reshape expectations for the remainder of the year.

Even if rates remain unchanged, any hints about future policy could trigger significant market reactions.

Rate Cut Odds by Year-End

Currently, markets are pricing in three rate cuts by the end of 2025. However, a notable minority—around 27%—believe the Fed may cut rates only once, twice, or not at all.

These expectations are highly sensitive to any new guidance from the Fed.

How Markets Could React

If the Fed emphasizes economic risks and adopts a cautious tone, expectations for rate cuts may increase → likely weakening the dollar and boosting gold prices.
If it highlights labor market resilience and inflation concerns, the odds of fewer cuts could rise → strengthening the dollar and pressuring gold.
If the Fed balances both perspectives, expect heightened volatility.

Don’t Overlook the Trade Story

Markets are also closely watching U.S.-China trade developments, which could be just as impactful as the Fed’s comments.

There is growing optimism about renewed trade negotiations, with a high-level meeting expected later this week in Switzerland between top U.S. and Chinese officials. Additionally, President Trump announced a forthcoming review of potential trade agreements within the next two weeks.

Bottom Line

While today’s rate decision is unlikely to surprise, the Fed’s commentary—especially on inflation, growth, and trade—will set the tone for market movements ahead. Traders should be prepared to read between the lines.