Global investment banks Barclays and Goldman Sachs revised their expectations for the U.S. Federal Reserve’s next interest rate cut on Friday, pushing their forecasts from June to July. The change follows a surprisingly strong April jobs report that showed resilience in the labor market despite broader economic concerns.
According to the latest government data, U.S. nonfarm payrolls rose more than anticipated last month, while the unemployment rate held steady at 4.2%. These figures suggested that employment remains stable, even as other indicators signal potential weakness ahead.
Earlier this week, the Commerce Department reported a contraction in gross domestic product (GDP) for the first quarter of 2025 — the first such decline since 2022. The slowdown was largely attributed to a spike in imports ahead of newly announced tariffs, which negatively impacted overall GDP calculations. Despite the contraction, components such as consumer spending remained relatively strong, suggesting parts of the economy are still holding up.
Amid this mixed backdrop, economists remain cautious. Bloomberg’s latest survey indicates a rising likelihood of a recession or a near-zero growth scenario over the next year, with 39% of economists now forecasting such an outcome — up from 26% in March. Nonetheless, the consensus still points to two quarter-point rate cuts by the Federal Reserve in 2025, likely to come in September and December.
The evolving outlook follows new tariff measures introduced by President Donald Trump, including steep levies on goods from China. These actions have raised concerns about inflationary pressures and global trade disruption. While the Fed has not adjusted its language since its March 19 policy statement, officials have continued to emphasize a balanced approach to inflation and employment, maintaining a data-driven stance.
The Federal Open Market Committee (FOMC), led by Chair Jerome Powell, is scheduled to convene on May 6–7 for its next policy meeting. Thus far in 2025, interest rates have remained unchanged. Policymakers are expected to closely monitor upcoming economic data and assess the impact of the new tariffs before considering any policy shifts.
Nigel Green, CEO of financial advisory firm deVere Group, warned that the Federal Reserve may be running out of room to maneuver. “For months, markets believed the Fed could engineer a soft landing — reining in inflation without derailing the economy,” Green said. “That narrative is now starting to unravel.”
He emphasized that recent policy changes under Trump’s administration — including increased government spending and trade restrictions — are likely to push inflation higher. “The Fed must now weigh not only economic data but also the broader political landscape,” Green added.
While inflation has shown some signs of easing in recent months, it continues to hover above the Fed’s 2% target. The challenge for the central bank is to respond decisively without further destabilizing an already uncertain economic environment.
As the May policy meeting approaches, all eyes will be on the Fed’s tone and guidance. With both economic and political pressures mounting, the path forward for interest rates remains anything but clear.
