Tonight's interest rate decision is expected to remain "on hold" as Federal Reserve officials await the "fog" of the economy to clear

According to the Zhitong Finance APP, Federal Reserve officials generally expect to maintain interest rates unchanged at the rate decision meeting on Wednesday, Eastern Time, for the fourth consecutive meeting, reiterating the need to have a clearer understanding of the impact of a series of government policy adjustments on the economy before adjusting borrowing costs. Policymakers had previously warned that tariffs from President Donald Trump could push up inflation and unemployment rates, but so far, robust job growth and cooling inflation have allowed Federal Reserve officials to keep interest rates unchanged this year.

Brett Ryan, a senior U.S. economist at Deutsche Bank, stated, "The wait-and-see strategy has been effective so far. Now, with no urgent reason for adjustment and inflation outlook still carrying upward risks, why deviate from this strategy?"

Given the uncertainty in the economic outlook, investors and economists will closely monitor the updated economic and interest rate forecasts from policymakers. Officials may continue to indicate, as most forecasts suggest, that there will be two rate cuts this year, but some economists say the "dot plot" may show only one rate cut. The Federal Reserve's rate decision will be announced at 2 PM Eastern Time on Wednesday, followed by a press conference with Chairman Jerome Powell 30 minutes later.

Key Points of the Policy Statement

Officials are expected to maintain the benchmark interest rate in the range of 4.25%-4.5%, with only minor adjustments to the statement following the May 6-7 meeting. Given the easing of trade tensions (especially between China and the U.S.) since the May meeting, policymakers may slightly adjust their wording regarding the uncertainty of the economic outlook.

Ryan and his team noted in a client report that officials may no longer describe uncertainty as "further escalating," but rather state it as "persistently high."

Updated Economic Forecasts

The key observation document, the "Summary of Economic Projections," will include the first update since March (when Trump announced large-scale tariffs) on Federal Reserve officials' estimates for growth, inflation, unemployment rates, and interest rates.

Initially, these tariffs, which exceeded the expectations of many economists and Federal Reserve officials, severely hampered the U.S. growth outlook. However, most tariffs have now been suspended and are in negotiation, leading economists to downgrade their previously pessimistic forecasts.

In an April Bloomberg survey, 26% of economists expected the U.S. to fall into recession in the next 12 months, but that proportion has dropped to 10% this month.

Nevertheless, forecasters still expect policymakers to again lower their growth estimates for this year and raise their inflation expectations for 2025. Officials' median estimate for the long-term federal funds rate (a measure of the so-called "neutral rate," which neither restrains nor stimulates economic activity) may continue to rise slightly, further supporting the rationale for a slight reduction in the number of future rate cuts.

Focus of the Press Conference

The recent unexpected cooling of inflation (with the Federal Reserve's preferred measure at 2.1% as of April, slightly above the 2% target) may prompt questions about "why the Federal Reserve has not yet cut rates." Although this is a positive signal, Powell may point out that there are still risks of price increases, especially if higher tariffs are implemented as planned this summer.

Investors expect the first rate cut to occur no earlier than September, with another possible cut in December. Powell may avoid making overly clear statements about the interest rate path for this yearIn addition, he may be asked about the meeting with Trump in May— the president has previously called on the Federal Reserve and Powell to cut interest rates multiple times, and earlier this month urged the central bank to lower rates by a full percentage point, mentioning that lower borrowing costs would help alleviate the U.S. debt burden.

Market participants will also pay attention to Powell's statements regarding the Federal Reserve's ability to pay interest on bank reserves (IORB). This authority was granted by Congress in 2006 and implemented in 2008, serving as a key tool for the Federal Reserve to control short-term interest rates when its balance sheet is large. Texas Senator Ted Cruz has proposed to eliminate this authority