If the Federal Open Market Committee (FOMC) hopes to meet with greater clarity this month, you will be very disappointed.
Instead of a clearer path, Jerome Powell and his colleagues sat down on the news Increased geopolitical conflicts in the Middle East– Potentially driven oil prices – as well as persistent uncertainties about collective agreements with important partners and a downgrading of US loan from Moody’s.
Of course, the elephant in the room will be the reaction of President Donald Trump, if the FOMC refuses again to consider his wishes to reduce the basic rate.
The melting pot with problems means that most analysts suspect that the basic rate is kept at 4.25 to 4.5%again – a relatively close posture according to the dovalic economists that argue that the economy is relatively well with data.
Like David Doyle, Head of Economy at the Macquarie Group, wrote in a note that shared this week with Fortune, Waling is a “rotation”.
“The FOMC should keep stable again this week,” continued Doyle. “The market reaction is likely to be driven by communication and the potential guidance of further cuts. The DOT diagram can push out the proposed time of the speed cuts. We suspect that this can tip over in 2025 and 75 BPS in 2026 (from 50 BPS in March 50 BPS in March).”
Doyle added that the chairman Powell “can describe the recent inflation developments as encouraging, but also their relevance in view of the uncertainty due to tariffs, financial policy and the recent increase in the oil price due to geopolitical developments.
The general expectation on Wall Street is that the basic rate will not change, but here are some of the headlines that may affect the final decision by chairman today.
Problem 1: oil
The tensions in the Middle East escalate attacks to Israel and Iran during the day each other with both sides aim at high -ranking military officers.
Although the United States would not get into conflict, President Trump posted Truth Social on his social media website that “we now have complete and total control over the sky over Iran” and suggested that Iran leader Ayatollah Kamei were an easy goal even though he was hiding. Khamenei would not “take out … for now,” added Trump.
The escalating tensions in the Middle East raise a question about the oil supply, with Iran closing the Hormuz. The oil flow through the road shows about 20% of the global consumption of oil fluids, writes the US energy information management.
Vikas Dwivedi, Global Energy Strategist at Macquarie, wrote in a note of Assets: “We assume that the oil prices for the next few weeks would remain with an upward trend, since Iran and Israel maintain their military intensity. Regardless of military or diplomatic progress, we expect Brent to gather at the low level of 80 US dollar before a plateau is available as the perceived risk of actual disruption of oil supply.
“From the low $ 80 plateau, the next price step in our view is driven by what happens to the Iranian oil export infrastructure. If it is damaged or destroyed, we believe that oil due to the direct loss of Iranian exports and risk premium in connection with the reaction of Iran, including blocking of the strokes of the strokes of the excitement of the excitement of the vocations of the Increases of the achievements of the achievements of the excitement of the achievements, damaged or destroyed.
“There will probably be a sale in the hope of diplomatic solutions, profit support and new shorts, but we expect them to be bought until the market determines the risk of oil supply.”
None of this makes Powell’s life easier because oil is a key factor that determines the inflation rate in the USA
Problem 2: Political uncertainty
Politics from the White House also increase the already blurred image further uncertainty.
Trump’s ‘big, beautiful bill’ brought the eyebrows over the crowd that she could contribute to the public debt of the US public prosecutor, Despite some deficits that are compensated for by inflationary, but money earners.
The lack of action from the Oval’s office does not impress Moody’swho downgraded the US debt from AA1 from AAA a month ago. This is a problem for Powell again, with the move increasing the returns of the Ministry of Finance and leading to higher credit costs for the government, which may affect the inflationary effects on consumers.
But as Jim Reid wrote to Deutsche Bank in a note that was shared with Assets This morning: “Before the decision of the Fed, the US state bonds gathered on the flight yesterday on the quality, and when the weak data consolidated the view that the reductions in installments were likely to be in the coming months.
“That meant that the yields fell over the curve, with the 2-year return (-1.5 bit / s) fell to 3.95%, while the 10-year return (-5.7 bit / s) fell to 4.39%. Discuss what to keep banks to keep banks. “
Another question is of course tariffs, with Powell already signaling that he is waiting for whether companies will pass on the costs to consumers.
Thierry Wizman, Global FX and installment strategy at Macquarie, pointed out a signal for the bank after the ‘Liberation Day Liberation Day, and the “Low May CPI printing is not, and tariffs do not matter for the measured inflation.
“Rather, inflation withdrew because the underlying fictional demand was weakened. We still support ourselves that Jay Powell will sound more” Dovish “next week than in May. We believe that this was not for the uncertainties caused by the tariffs. The combined information that comes from inflation and the work market data have enlarged its feds, his feds Reduce politics back into the guideline rate. ”
Problem 3: Trump
Powell also has to survive the storm that can come in the form of President Trump, who made it Clear that he wants the Fed to reduce interest rates.
While Trump has withdrawn from threats that fear the market that the independence of the Fed could be threatened, he has no secret that he wants to “” too long Powell “to lower the base.
On the other hand, Powell said that politics has absolutely no influence on the decision -making of the Fed.
Despite Trump’s threats that he could threaten Powell about the lack of measures, Richard Clarida, the former deputy chairman of the Federal Reserve from 2018 to 2022, said that the White House would significantly change the independence of the central bank.
“We can go into a world in which the Fed loses something in the regulatory sense,” said Clarida Marketwatch In an interview published yesterday. “But it looks as if the FED keeps independence in increasing or lower interest rates.”
On the chairman, followed by the Powell, Clarida added that Trump’s nomination will not be the only factor: “I think the markets can have a say,” he said, and noticed shares and bonds on a shaky trip if the Fed’s candidate was not considered to be really independent or obliged to reduce inflation.
