Tonight's interest rate decision is expected to remain "unchanged" Federal Reserve officials calmly waiting for the economic "fog" to dissipate

Federal Reserve officials generally expect to hold interest rates steady for the fourth consecutive meeting at the rate decision on Wednesday Eastern Time, and reiterated the need for a clearer understanding of the impact of a series of government policy adjustments on the economy before adjusting borrowing costs. Policymakers had previously warned that President Donald Trump's tariffs could push up inflation and unemployment, but so far, steady job growth and cooling inflation have allowed Fed officials to maintain interest rates this year. Brett Ryan, senior U.S. economist at Deutsche Bank, said, "The wait-and-see strategy has been effective in the past. With no compelling reason to adjust at the moment, and upward risks to the inflation outlook, why deviate from this strategy?" Given the uncertain economic outlook, investors and economists will closely watch policymakers' updated economic and interest rate forecasts. Officials may continue as most forecasts suggest, anticipating two rate cuts this year, but some economists suggest that the "dot plot" may only show one rate cut. The Federal Reserve interest rate decision will be announced at 2 p.m. Eastern Time on Wednesday, with Chairman Jerome Powell holding a press conference 30 minutes afterwards. Key points of the policy statement: Officials are expected to keep the benchmark rate between 4.25% and 4.5%, and make only minor adjustments to the statement after the meeting on May 6-7. Given that trade tensions have eased since the meeting in May (especially between China and the U.S.), policymakers may make slight adjustments to their statement regarding uncertainty about the economic outlook. Ryan and his team pointed out in a client report that officials may no longer refer to uncertainty as "escalating further, but only state it as remaining elevated. Updated economic forecasts: The key observation document, the "Economic Forecast Summary," will include the first updates from Federal Reserve officials on growth, inflation, unemployment, and interest rate estimates since March (before Trump announced large tariffs). Initially, these tariff measures, which were beyond the expectations of many economists and Fed officials, severely weighed on U.S. growth prospects. However, as most tariffs have been suspended and entered into negotiations, economists have also lowered their previous pessimistic forecasts. In a April Bloomberg survey, 26% of economists expected the U.S. to enter a recession in the next 12 months, a figure that has dropped to 10% this month. Nevertheless, forecasters still expect policymakers to once again lower their growth estimates for this year, and raise their inflation expectations for 2025. The median estimate of officials for the long-term federal funds rate (the so-called "neutral rate" indicator, which neither inhibits nor stimulates economic activity) may continue to slightly increase, further supporting the rationale for a slight reduction in the number of future rate cuts. Focus of the press conference: Recent unexpectedly cooling inflation (the Fed's preferred indicator was 2.1% as of April, slightly above the 2% target) may trigger questions about "why the Fed has not lowered interest rates yet." While this is a positive signal, Powell may point out the risk of prices rebounding, especially if higher tariffs are set to take effect this summer according to plan. Investors expect the first rate cut to come in September at the earliest, with another cut likely in December. Powell may avoid making overly specific statements about the interest rate path for this year. In addition, he may be asked about the meeting with Trump in May - the president has repeatedly called for the Fed and Powell to lower rates, and earlier this month urged the central bank to lower rates by one full percentage point, mentioning that lower borrowing costs would help alleviate the burden of U.S. debt. Market participants will also focus on Powell's statements about the Fed's ability to pay interest on bank reserves (IORB). This power was granted by Congress in 2006 and implemented in 2008, and is a key tool for the Fed to control short-term interest rates when its balance sheet is large. Texas Senator Ted Cruz has proposed to revoke this power.