📈 Wall Street’s eyes are on the Federal Reserve as the U.S. stock market rally continues gaining steam, with hopes growing for a shift in Fed policy that could include interest rate cuts in the near future.
The upcoming Federal Reserve meeting, scheduled for next week, has become a focal point for investors eager for clarity on the central bank’s direction. Markets have surged recently, nearly reversing losses triggered by former President Donald Trump’s announcement of sweeping new tariffs last month.
Since Trump’s April 2 “Liberation Day” tariff declaration — which caused some of the most extreme volatility on Wall Street in decades — the S&P 500 index has trimmed its decline to just around 1%. Investors are now increasingly confident that the Fed will act to support the economy by lowering interest rates, possibly as soon as June.
“The Fed is one of the few timely tools that can boost markets,” said Dominic Pappalardo, Chief Multi-Asset Strategist at Morningstar Wealth. “If the Fed signals easing inflation fears, that brings us closer to a rate cut — something markets will strongly support.”
Interest Rate Outlook: Will the Fed Cut Rates in 2025?
Although the Fed is expected to hold its benchmark interest rate steady at 4.25%–4.50% at this meeting, futures markets now price in nearly four 25-basis-point rate cuts by year-end, according to LSEG data.
Last year, the Fed slashed rates by a full percentage point. But the economic landscape remains complex: First-quarter GDP showed a contraction — the first since 2022 — largely due to businesses accelerating imports to avoid higher costs from Trump’s trade tariffs.
Trump Tariffs and Fed Independence in the Spotlight
As the Fed weighs a potential slowdown against inflation risks, political pressure is mounting. Trump has openly criticized Fed Chair Jerome Powell and previously floated the idea of firing him — comments that rattled investors and raised concerns about the central bank’s independence.
“Powell might maintain a hawkish tone to push back on the idea that the Fed is being politically influenced,” said Angelo Kourkafas, Senior Investment Strategist at Edward Jones.
S&P 500 Outlook and Corporate Earnings Performance
Despite eight consecutive sessions of gains, the S&P 500 index remains about 9% below its all-time high reached in February. April’s sell-off briefly pushed the benchmark down nearly 20% from its peak, highlighting ongoing market fragility.
However, corporate earnings have been a bright spot. With two-thirds of the S&P 500 companies reporting, earnings are coming in 7.4% above expectations — significantly higher than the historical average of 4.3%, according to LSEG IBES.
Strong performances from tech giants like Microsoft and Meta Platforms helped drive Thursday’s rally. Investors are now watching upcoming earnings reports from Uber Technologies, Walt Disney, and ConocoPhillips.
U.S. Trade Policy and Stock Market Sentiment
Trade remains a critical factor in market sentiment. Optimism has grown after Trump announced a 90-day pause on certain import tariffs while the U.S. negotiates with key trading partners.
“The market is expecting tangible trade deals. It’s time to deliver,” said Scott Wren, Senior Global Market Strategist at Wells Fargo Investment Institute.
As the Federal Reserve prepares its next move, markets are banking on a dovish shift. A rate cut signal could be the catalyst that fuels a full recovery in the U.S. stock market — but all eyes are on Powell and the Fed for now.
