Federal Reserve to Maintain Interest Rates Amid Strong Jobs Data and Inflation, Despite Trump's Pressure

The Federal Reserve is expected to maintain its benchmark interest rate at 4.25% to 4.5% during its May 7 meeting, despite President Trump's calls for rate cuts. This decision is supported by strong job growth, with 177,000 jobs added in April, and persistent inflation, with the New York Fed's inflation measure at 3.0%. Market participants anticipate a potential rate cut in July due to economic slowdown concerns. A CNBC survey indicates a 65% expectation for a rate cut later this year, with the federal funds rate projected to fall to 3.71% by year-end.

Fed Holds Steady as Labor Market Shows Strength

The U.S. economy added 177,000 jobs in April, surpassing expectations of 138,000, according to the Bureau of Labor Statistics. Although revisions to previous months trimmed 58,000 jobs from the total, the three-month average payroll gain rose to 155,000, indicating continued labor market resilience. The unemployment rate remained unchanged at 4.2%, consistent with recent months and reinforcing the view that the labor market remains on solid footing.

This robust employment data has bolstered the Federal Reserve’s case for holding interest rates steady. According to CME Group’s FedWatch tool, there is a 99% probability that the Fed will maintain its current target range of 4.25% to 4.5% at the May 7 meeting. The rate has remained unchanged since December 2024.

Inflation Remains Stubbornly High

While the labor market remains strong, inflation continues to pose a challenge for policymakers. The New York Fed’s Multivariate Core Trend (MCT) inflation measure rose to 3.0% year-over-year in March, the highest reading in over a year. This uptick was driven largely by non-housing services and core goods, suggesting that inflationary pressures remain persistent despite some deceleration in headline measures like the PCE price index.

The Federal Reserve’s long-term inflation target remains at 2%, and officials have reiterated their commitment to this goal. According to Forrester’s analysis of Q1 2025 data, headline inflation held steady at 2.7%, with core inflation expected to remain above target until at least 2027. These figures have reinforced the Fed’s cautious stance, with several Federal Open Market Committee (FOMC) members advocating a “wait-and-see” approach.

Political Pressure Mounts from the White House

Despite the Fed’s independence, President Trump has continued to publicly call for rate cuts, arguing that inflation is under control and that lower rates are needed to support consumers and businesses. In a recent Truth Social post, Trump wrote, “Consumers have been waiting for years to see pricing come down. NO INFLATION, THE FED SHOULD LOWER ITS RATE!!!”

However, Fed Chair Jerome Powell has consistently emphasized the central bank’s autonomy and data-driven approach. “I don't think you should ever take anything off the table – that's [rate] increases, cuts, holding the same – but the circumstance that we're in now, where there are a lot of major question marks, is more like we need to wait-and-see how these things are getting resolved,” said Austan Goolsbee, President of the Federal Reserve Bank of Chicago and a voting member of the FOMC.

Market Expectations Shift Toward July Rate Cut

While the Fed is expected to hold rates steady in May and likely again in June, market participants are increasingly betting on a rate cut at the July 30 meeting. CME FedWatch places the probability of a July rate cut at 80%, reflecting growing expectations that the Fed will respond to slowing economic growth and rising unemployment later in the year.

A recent CNBC Fed Survey of 31 economists, fund managers, and analysts found that 65% expect the Fed to cut rates in response to stagflationary conditions—characterized by high inflation and slowing growth. This is a notable increase from 44% in March. The survey projects the federal funds rate will decline to 3.71% by the end of 2025 and to 3.36% by the end of 2026.

The same survey forecasts that the unemployment rate will rise to 4.7% by year-end, while GDP growth is expected to slow to just 0.8% in 2025, down from 3.1% in 2024. Inflation, meanwhile, is projected to rise to 3.2% before easing to 2.6% in 2026.

Tariffs and Trade Policy Add to Economic Uncertainty

Complicating the Fed’s outlook are the Trump administration’s new trade policies, including recently enacted tariffs. Economists warn that these measures could lead to higher consumer prices, further complicating the inflation picture. “Uncertainty surrounding tariff policy and objectives are weighing on planned investment and new orders,” said Constance Hunter, chief economist at the Economist Intelligence Unit.

According to the CNBC survey, 63% of respondents believe that across-the-board 10% tariffs on all U.S. imports will likely remain in place, even after new trade deals are finalized. A majority of respondents also view these tariffs as negative for U.S. growth, employment, and inflation.

Fed’s Next Steps: Data-Dependent and Cautious

Looking ahead, the Fed will closely monitor upcoming economic data, including the Consumer Price Index (CPI) release on May 13. This data will be critical in assessing whether inflation is moving closer to the Fed’s 2% target. Until then, officials are expected to maintain a cautious stance, balancing the risks of inflation against signs of economic slowdown.

While political pressure from the White House continues, the Fed’s decision-making remains rooted in economic indicators. As Powell and other officials have emphasized, monetary policy will be guided by data, not politics.

References

• Trump wants the Fed to cut rates on Wednesday. Will it oblige?
• Why is the Fed expected to hold interest rates despite Trump’s pressure to cut them
• April Jobs Report Beats Estimates; Economy Adds 177k Jobs | J.P. Morgan
• US Economic Trends And Outlook: New Quarterly Series Tracks Growth Indicators For 2025
• NY Fed’s “Multivariate Core Trend” Inflation Measure Hits 3.0%, Worst in Over a Year, Predicts Acceleration of PCE Price Index | Wolf Street
• The Federal Reserve is likely to hold interest rates steady this week. Here's what that means for your borrowing costs
• Wobbling economy will push the Fed to cut interest rates later this year, CNBC survey finds