According to the latest data from the CME FedWatch tool, the likelihood of the US Federal Reserve (Fed) implementing an interest rate cut in May has sharply dropped from 57% to just 15%. This sudden change is mainly due to two factors: President Donald Trump's decision to temporarily suspend new tariffs for 90 days and the recently published minutes of the Federal Open Market Committee (FOMC) meeting in March.
The minutes of the FOMC meeting held on March 18-19 clearly show the cautious but still "hawkish" perspective of monetary policymakers. Although noting that the US economy continues to grow steadily along with a strong labor market, Fed officials remain particularly concerned about the risk of prolonged inflation above the 2% target.
Many FOMC members expressed concerns that inflationary pressures could continue to rise, especially when new tariff policies are widely implemented, accompanied by the risk of disrupting the global supply chain. Some members noted that the consumer price index in January and February had exceeded expectations, and emphasized that the impact of new tariffs — especially for essential goods — could be more prolonged and extensive than initially anticipated.
Although there were no proposals to change the current interest rate, Fed members unanimously agreed that flexibility in policy management needs to be maintained to respond to potential fluctuations in the macroeconomic environment. Uncertain factors such as trade policy, fiscal situation, and immigration policy are considered major risks that could alter the US economic outlook.
In this context, President Trump's decision to temporarily postpone tariffs for most countries for 90 days, while raising tariff rates up to 125% for imported goods from China, has temporarily alleviated concerns about an escalating trade war. However, the possibility of China implementing retaliatory measures, along with inflation prospects that have not yet cooled down, are further reinforcing the Fed's stance on tightening monetary policy.
All these factors have caused investors to increasingly reduce expectations of the Fed cutting interest rates soon, at least in the upcoming May meeting. In the current volatile environment, the Fed appears to will continue to maintain a tough stance to control inflation before considering any adjustments to interest rate policy.
