Central Bank leaves rates unchanged in May

Latest bank decision: At its meeting ending on 7 May, the Central Bank decided to maintain the target range for the federal funds rate at 4.25–4.50%.

Uncertain outlook and high prices drive hold: The Bank decided to stay put in light of inflation which is still above the 2.0% target despite dipping so far this year, and an increase in economic uncertainty under Donald Trump’s presidency as a result of volatile trade policy.

Rate cuts still the base scenario: The Consensus among our panelists is for around 50 basis points of cuts by end-2025, though some panelists now seeing the Fed on hold for all of 2025 in light of upside risks to prices stemming from tariff increases. Uncertainty over the interest rate outlook is unusually large due to Trump’s unpredictable trade policy.

Panelist insight: On the outlook, United Overseas Bank’s Alvin Liew said: “Given the Fed is advocating for patience even as it has upped its warnings about the risks of higher inflation and unemployment due to the tariffs, we continue to hold our view of three 25- bps cuts in 2025, though we have decided to push back the expected timeline to Sep, Oct and Dec.” ING analysts said: “The scale of the slump in consumer and corporate sentiment to levels historically consistent with recession will be of concern to the Fed. Economic uncertainty and government spending curbs mean that trade deals and tax cuts need to be agreed quickly to prevent a stagflation infused downturn. Nonetheless, we expect that shelter-related disinflation, as already hinted at by the Cleveland Fed’s new tenant rent series, will give the Fed the room to respond with rate cuts later in the year.” 

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