- May 7, 2025
- Posted by: Melanie Scott
- Category: Market News
The Fed held its benchmark rate steady at 4.5% today, as widely expected, despite continued pressure from President Trump for immediate rate cuts. Chair Powell reiterated that the economy continues to expand at a “solid pace” and that the Fed remains prepared to act as needed. Key highlights from the FOMC statement:
- The labor market remains strong, with low unemployment.
- Inflation is still somewhat elevated.
- Uncertainty around the economic outlook has increased, with rising risks of both higher inflation and higher unemployment.
Expectations for a June cut have faded, and markets are now pricing in three quarter-point reductions this year—down from four at the start of April. In its current wait-and-see mode, the Fed is focused on assessing the lagged effects of existing policy and monitoring inflation expectations, offering no firm guidance on the path ahead.
In Germany, March factory orders rose 3.6%, far exceeding expectations for a 1.3% gain—possibly reflecting efforts to front-run US tariffs. Industrial production data is due tomorrow and expected to rise 1.0% following a 1.3% decline in February. Markets remain confident the ECB will cut rates at its June 5 meeting.
The US and China are set to begin initial trade talks this weekend in Switzerland. Scott Bessent is aiming to de-escalate the tariff standoff that he likens to a trade embargo, following President Trump’s recent imposition of tariffs as high as 145% on Chinese imports. Beijing responded with retaliatory tariffs of up to 125%. These will mark the first confirmed trade talks since the escalation.
USDCAD closed yesterday at its lowest close since October. Yesterday’s trade data showed a 6.6% drop in Canadian exports to the US—the largest monthly decline since the pandemic—coinciding with the implementation of new US tariffs. However, exports to non-US destinations surged 24.8%, driven by strong gold and oil shipments, helping to offset the decline. Imports from the US also fell by nearly 3%. As a result, Canada reported a smaller-than-expected trade deficit of -$0.5B vs the -$1.7B forecast.
Prime Minister Mark Carney met with President Trump in Washington yesterday, addressing trade, Canadian sovereignty, and defense cooperation. Both leaders described the meeting as constructive. Trump was firm on his stance that autos should be made in the US, stating there was nothing Carney could say to persuade him to lift tariffs, to which Carney responded: “We’ll see.” The two will next meet in person in June at the G7 summit.
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