May FOMC "Uncertainty Increases, Unemployment and Inflation Risks Rise" [Fed Watch]

"Ready to Adjust Monetary Policy"

Investors Bet 70% on June Hold Possibility

The U.S. Central Bank (Fed) announced at the May Federal Open Market Committee (FOMC) held on the 7th (local time) that "uncertainty about the economic outlook has increased" and "the risks of rising unemployment and inflation have both increased."

On this day, the Fed showed awareness of the recent tariff policies of the Trump administration and geopolitical tensions through the FOMC statement. Although the benchmark interest rate was held at 4.25~4.5%, it can be interpreted that they are ready to change the direction of monetary policy at any time.

In fact, the FOMC statement stated, "In assessing the appropriate direction of monetary policy, the Committee will continue to monitor the impact of incoming information on the economic outlook," and "the Committee (FOMC) is prepared to adjust the direction of monetary policy as necessary if risks arise that could impede the achievement of the Committee's goals."

Investors also expect the Fed to continue holding rates at least until the next June meeting. According to the Chicago Mercantile Exchange's FedWatch, the interest rate futures market reflected a probability of about 70% that the Fed would hold rates at the June meeting as of this morning.

Fed members are known to emphasize that the impact of tariff policies on prices will be temporary, but market participants believe that considering the uncertainty of prolonged tariff effects, the Fed's resumption of rate cuts will occur at least after July.

The Fed also expressed its intention to continue quantitative tightening (QT). The Fed stated, "The FOMC will also continue to reduce the holdings of Treasury securities, agency debt securities, and agency mortgage-backed securities." This means that the Fed intends to reduce the liquidity released into the market by continuing to sell or not reinvest the assets it previously purchased for economic stimulus.

New York = Shin-Young Park, Correspondent nyusos@hankyung.com