Why Trump – and Investors – Should Brace for Disappointment from the Fed

The Anticipated Fed Meeting

The Federal Open Market Committee (FOMC) is set to convene on May 6 and 7, and this meeting is drawing attention not only from investors but also from President Donald Trump. Despite mounting pressure, it appears that the Fed, led by Chair Jerome Powell, is not inclined to cut interest rates anytime soon. Trump’s vocal advocacy for lower rates is clear—he recently took to Truth Social with an all-caps proclamation stating, “NO INFLATION, THE FED SHOULD LOWER ITS RATE!!!” However, the reality is, expectations for rate cuts may be overly optimistic.

Understanding Trump’s Motive

Trump’s desire for the Fed to lower interest rates stems from the belief that cheaper money will stimulate economic growth and boost stock market performance—both of which would serve to bolster his administration’s image and political fortunes. Lower interest rates enhance liquidity in the economy, allowing capital to flow freely and stimulate investment. However, the Fed’s reluctance to act quickly creates friction between Trump’s ambitions and the central bank’s cautious approach.

The Fed’s Dissonance

Historically, the Fed shifted to a rate-cutting cycle in September of last year and took further action in subsequent months. Yet recent pronouncements indicate a commitment to a slower pace, as evidenced in December’s meeting when Powell hinted that fewer cuts would be on the docket for 2025. Current projections indicate a mere 50 basis points of cuts—half of what was previously envisioned.

Why is the Fed Hesitant?

One of the key reasons for the Fed’s reluctance is the potential impact of President Trump’s trade policies and tariffs, which introduce further uncertainty into economic projections. Amid rising inflation concerns, the Fed finds itself walking a tightrope, balancing its response to President Trump’s economic strategies with the goal of maintaining economic stability. As noted by Sameer Samana from Wells Fargo, the Fed appears comfortable at the current rate range of 425-450 basis points, feeling it strikes a balance between stimulation and restriction.

The complications introduced by tariffs and immigration policies could potentially lead to inflation—one of the primary concerns that led the Fed to raise rates more aggressively in the first place. With various reforms just taking root, the Fed’s cautious stance aligns with its historically data-driven mandate, wherein economic indicators remain critical in informing policy decisions.

The Investor Landscape

Investors have reacted tensely to the signals emanating from both the Fed and the Trump administration. Following the imposition of tariffs on April 2, the stock market initially responded negatively, plummeting sharply when Powell stated there was no immediate need to adjust rates. Market confidence wavered further after Powell emphasized that tariffs would likely invoke inflationary pressures—a statement that sent stocks into a tailspin once again.

Trump’s public criticism of Powell—calling him “Too Late Jerome”—only added to the market’s uncertainty. Investors began to fear for the independence of the Fed, an essential characteristic that has drawn international investment to the U.S. market. However, Trump’s more recent comments, signaling a willingness to back off his previous rhetoric and allow Powell to operate without overreach, restored a sense of equilibrium to the markets.

Looking Ahead to the Fed Meeting

The optimism surrounding the upcoming Fed meeting reflects the length of the S&P 500’s recent winning streak—its longest in over two decades. However, it is a mistake to misconstrue this optimism as an implicit promise from the Fed. Current expectations show a 99.5% probability that rates will remain unchanged during this pivotal meeting, with investors already contemplating the possibility of cuts later this year. Yet, if the Fed remains steadfast in observing the economic fallout from tariffs before making any decisions, readiness for cuts may remain elusive.

As Steve Sosnick of Interactive Brokers notes, the reality of future rate cuts may hinge on either an alleviation of price pressures or a significant weakening of the economy—both scenarios that should be approached with cautious foresight. Whether Trump will amend his expectations remains to be seen, yet for both him and investors, the likelihood of disappointment looms large. Those hoping for swift action from the Fed should reassess their strategies and brace for an eventual reality check.

Conclusion

In sum, the Fed’s steadfastness in the face of political and economic turbulence demonstrates its commitment to sound monetary policy. Investors and the administration should recognize that true economic growth comes from more than simply reducing interest rates; it requires a stable, predictable environment that is derived from prudent policy-making. As we approach the unfolding Fed meeting, the lessons of patience and vigilance in investment strategies take center stage.