Fed’s stance on interest rates still uncertain days before decision

ISTANBUL

With the Federal Reserve’s path forward on interest rates uncertain, world markets are holding their breath until Wednesday, when the next decision will come.

Whether the Fed will cut rates remains to be seen amid ongoing uncertainties over trade disputes.

Market expectations say the Fed will not cut rates until September. Experts with various views on the issue have tried to shed some light.

James Knightley, chief international analyst at the ING Group, told Anadolu that the Fed is expected to maintain its policy rate.

He said the US economy contracted 0.2% in the first quarter, employment growth cooled down, and inflation grew more moderate – all valid grounds for a rate cut. The weakness in economic activity was due to tariffs leading to a decline in imports, as companies were trying to avoid them, he said.

Knightley said underlying demand held up strong and growth of 4% in the gross domestic product (GDP) could be seen with the easing in imports in the second quarter.

“The Fed remains in wait and see mode, but we will be closely watching their updated forecasts for indications as to what they might do later in the year,” he said. “The market is currently pricing two rate cuts for September and December, so there appears little pressure for the Fed to change their forecast from what they published three months ago of 50 basis points of cuts this year and 50 basis points in 2026.”

Philip Marey, senior US strategist at Rabobank, told Anadolu that the Fed is expected to keep the target range for the federal funds rate unchanged at 4.25- 4.50%.

“The new dot plot will already reveal how many rate cuts the FOMC still expects to make this year and beyond,” he said, adding that the stagflationary effect of tariffs will “pull the Fed in two opposite directions.”

“On balance, this does not alter our forecasts for the Fed – for now, we expect only one rate cut in the second half of the year, most likely in September,” he added.