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    Published on Monday, May 5, 2025

    US | Fed to stay put as it waits for tariff effects to show up in 2Q data

    Summary

    Amid mixed economic data and the delayed effects of recently imposed tariffs, we expect the Fed to keep the policy rate unchanged this week at its 4.25-4.50% target range; it will likely signal it has room to maintain its policy stance heading into the June meeting.

    Key points

    • Key points:
    • While headline GDP contracted by 0.3% in 1Q25 driven by surging imports, underlying demand remained solid, with consumption and investment proving resilient.
    • Hiring remains robust across cyclical sectors, and layoffs are limited—even as federal employment shrinks and outlook risks persist.
    • Despite softer price data (core PCE inflation rose by just 0.03% in March) tariffs and rising expectations suggest the Fed will tread cautiously on any dovish turn.
    • Treasury yields and widening spreads reflect investor uncertainty, while Fed officials emphasize caution amid persistent inflation threats.
    • With economic activity still solid and tariffs set to push up inflation, the Fed is expected to extend its pause while awaiting greater clarity.

    Geographies

    • Geography Tags
    • US

    Topics

    Authors

    Javier Amador BBVA Research - Principal Economist
    Iván Fernández BBVA Research - Senior Economist

    Documents and files

    Report (PDF)

    Fed to stay put as it waits for tariff effects to show up in 2Q data

    English - May 5, 2025

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