The Week in Review: May 12, 2025
Team Wait and See
Virtually no one was surprised when the Federal Reserve kept its key lending rate, the fed funds rate, at 4.25 – 4.50% last week. Fed officials had widely telegraphed that there would be no change in the fed funds rate. Hence, the decision had no impact on stocks. It was fully expected.
As we sometimes observe, it’s how the decision is framed that can affect markets.
Given the high level of uncertainty surrounding the implementation of tariffs, Fed Chief Powell didn’t offer much of an economic outlook except for the remark, “Given the scope and scale of the tariffs (if sustained), the risk to higher inflation, higher unemployment has increased.”
He may be right. However, he refrained from assigning a numerical value to an economic forecast, likely because he didn’t want to paint the Fed into a corner if he is wrong.
Recall the Fed’s insistence in 2021 that soaring inflation would be “transitory (temporary).”
Instead, he left his options open at his press conference. He mentioned that the Fed is in a “wait and see” mode 12 times regarding the economy and any rate cuts. And he didn’t stop there.
He repeatedly emphasized that the Fed is in no rush to lower interest rates, stating that it "doesn’t need to be in a hurry" three times and can be "patient" four times. Additionally, he described monetary policy as being in a "good place" on nine occasions. In essence, he underscored the Fed’s cautious and measured approach to potential rate cuts.
Will trade tensions have a greater impact on the unemployment rate or a bigger influence on inflation? That was the main takeaway, and Powell wasn’t showing his cards.
If an increase in the jobless rate outpaces any rise in inflation, Powell hinted the Fed would focus on the labor market, and we’d expect rate cuts to materialize to encourage economic growth.
However, if inflation is a problem and any economic slowdown is modest or minor, the Fed would seemingly delay any rate cuts.
While there has been some anecdotal evidence of trade-related economic impacts, recent reports from the U.S. Bureau of Labor Statistics signal no impact on retail prices (through March) or a rise in the jobless rate (through April). For now, investors don’t expect a near-term rate cut.
Market Summary
Please do not hesitate to contact me with any questions or concerns.
I hope you have a great week!
Bill Stordahl, CFP®
Managing Director
Stordahl Capital Management
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