Wall Street’s attention will turn sharply toward Washington next week as the Federal Reserve holds its latest policy meeting against a backdrop of intensifying trade tensions and a full slate of corporate earnings.
Investor focus will center on Wednesday’s Federal Open Market Committee (FOMC) decision, where the Fed is widely expected to keep interest rates unchanged.
According to the CME FedWatch tool, markets are nearly certain the central bank will hold its benchmark rate steady for a third straight meeting.
“We don't expect any change in the stance of policy at the May meeting,” UBS analysts wrote in a note. “We think the statement will be little changed, and we expect the Chair to sound relatively similar to his recent remarks.”
Deutsche Bank echoed that view, noting that the Fed is likely to avoid any forward guidance as policymakers wait for more clarity on the effects of US trade actions. “The overall tone of the meeting is likely to echo comments from Chair Powell and his colleagues in recent weeks,” the bank said. “The administration's policies are likely to push the economy away from the Fed's dual mandate objectives for a period of time, but monetary policy is ‘well positioned’ to respond.”
Tariff risks
Analysts expect Fed Chair Jerome Powell to face pointed questions during his post-meeting press conference about how the central bank plans to navigate inflation risks tied to the widening scope of tariffs. While Powell had initially described tariff-driven price increases as “transitory,” Deutsche Bank notes his tone has shifted.
“As the scale of tariffs announced became evident – which Powell has labeled ‘significantly larger than anticipated’ – he and his colleagues have shifted their focus and concern to inflation pressures,” Deutsche Bank said. Powell is expected to reiterate that sustainable maximum employment requires price stability, and that it is the Fed’s “obligation” to prevent tariff-driven inflation from becoming entrenched.
The spotlight on tariffs is intensifying. Starting May 2, packages from China and Hong Kong are no longer eligible for the de minimis exemption, while auto parts tariffs took effect May 3. The public comment period for potential new tariffs on pharmaceuticals and semiconductors ends May 7, after which the Commerce Department will issue its findings.
Next week will also see President Donald Trump meet with newly elected Canadian Prime Minister Mark Carney. Canada continues to face elevated tariffs and has taken retaliatory action, making the meeting a key moment in cross-border trade relations.
On the economic front, UBS expects a slowdown in the services sector, forecasting that the ISM non-manufacturing index will fall to 50 in April. The bank also sees weak productivity in line with the recent GDP report, though jobless claims are expected to stabilize.
Meanwhile, first-quarter earnings season continues with key reports due from several major companies. Ford (F), Palantir (PLTR), AMD (AMD), Walt Disney (DIS), and Shopify (SHOP) are among the highlights in a busy week for corporate results.