DWS: Expects the Federal Reserve to remain on hold in May, with market focus still on inflation
DWS Chief U.S. Economist Christian Scherrmann pointed out in the "May FOMC Meeting Preview" report that the Federal Reserve is not expected to make significant monetary policy adjustments at the May meeting, and may adopt a slightly hawkish tone, but will effectively maintain a wait-and-see stance. The report emphasizes that market focus will remain on inflation, particularly the potential impact of tariffs on the economy. DWS expects the Federal Reserve to cut interest rates up to three times in the next 12 months
According to the Zhitong Finance APP, Christian Scherrmann, Chief U.S. Economist at DWS, published a report titled "Preview of the May FOMC Meeting," predicting that the Federal Reserve will not make significant monetary policy adjustments at the May meeting. Federal Reserve officials may signal a weakening confidence in economic momentum. The post-meeting statement may shift the description of economic growth to "moderate," but will still emphasize that the labor market is "robust."
Overall, DWS believes that "the Federal Reserve will adopt a slightly hawkish tone, but in reality, it is extending its wait-and-see stance."
The report indicates that the Federal Reserve is currently in a dilemma. On one hand, the latest inflation data is below expectations, which may be a continuation of past trends. On the other hand, the market expects tariffs to have an impact, thereby raising inflation expectations. Additionally, key factors such as the final direction of tariff policies and potential changes in fiscal policy remain unclear. Due to this uncertainty, it may be prudent for officials to first consider the data before responding. Acting too early in a highly uncertain environment could lead to misjudgments, either exacerbating inflationary pressures or unnecessarily suppressing demand.
In the medium term, the market's focus will still be on inflation, especially whether tariffs will trigger a second-round effect, such as supply chain disruptions or a shift in demand towards industries with lower domestic capacity. DWS expects that the Federal Reserve will at least continue to wait and see until economic activity shows a significant slowdown and the labor market weakness brings deflationary expectations to the market. This situation may occur in the second half of the year, so DWS still anticipates that the Federal Reserve will cut interest rates up to three times within the next 12 months
