The Federal Reserve’s FOMC interest rate decision on May 7, 2025, at 2 PM ET, is a critical event influencing global markets, especially cryptocurrencies, due to potential impacts on inflation and borrowing costs.
Market expectations, per the trending summary, suggest rates will remain at 4.25–4.50%, with the Fed’s recent $20 billion and $42 billion bond purchases signaling a cautious stance amid tariff uncertainty, potentially affecting Bitcoin prices.
The trending summary states that analysts and market observers expect the Fed to maintain interest rates at 4.25–4.50%, citing tariff uncertainty and the need for more evidence of declining inflation.
Reuters reinforces this, stating the May 7 meeting outcome is “cut and dry” with rates expected to remain unchanged due to Trump’s tariffs creating economic uncertainty.
Fed Chair Jerome Powell has emphasized a data-dependent approach. Powell is saying the Fed is “well positioned to wait for greater clarity before considering any adjustments to our policy stance.” This suggests the Fed is unlikely to act without clear evidence of economic shifts. Fed Governor Christopher Waller indicates gradual rate cuts might happen later in 2025 if tariffs decrease, or more aggressive cuts if tariffs remain high and unemployment rises significantly (e.g., by more than 0.1% in a month). However, there’s no indication in the data that unemployment has spiked to that level yet.
Trump’s tariffs are a major factor and have already shrunk U.S. GDP last quarter, tanked consumer and business sentiment, and prompted warnings from companies like McDonald’s and Apple about earnings hits. This could lead to higher inflation and unemployment, but the Fed views tariff-driven inflation as potentially temporary. Powell is noting that tariffs are “larger than expected,” likely leading to higher inflation and slower growth. However, he stresses it’s “too soon to say” what the appropriate monetary policy response should be, indicating the Fed isn’t ready to act yet.
Inflation remains a concern and Powell has emphasized the importance of anchoring inflation expectations, which might deter rate cuts if inflation risks persist. Traders have trimmed bets on rate cuts, expecting the Fed to wait until June 2025 for the first cut, with only 75 basis points of reductions (three 25-basis-point cuts) over the year. This shift came after Trump increased tariffs on China, adding to economic uncertainty.
