Fed may hold off on rate cuts as US economy remains strong

Traders expect the Federal Reserve (Fed) to cut interest rates at a slower pace this year, as the robust US economy allows policymakers to delay decisions before embarking on a more significant monetary easing in 2026.

Markets are now pricing in three quarter-point reduction of borrowing costs this year, down from four in early April. This comes on the day the regulator announces its future monetary stance. Another half percentage point rate cut is likely to happen next year.

Today, May 7th, investors will be closely watching Fed Chair Jerome Powell's speech. The central bank may keep its key rate on hold at between 4.25% and 4.50%.

Market expectations for monetary easing at the regulator’s June meeting have also eased since Friday, following better-than-expected US employment data. Further evidence of a strengthening economy was provided by the ISM service sector report for April.