Next week, the Federal Reserve will decide on monetary policy. In line with market consensus, analysts at Wells Fargo see the FOMC raising rates by 25 basis points, on what they believe will most likely be the last rate hike in this tightening cycle. They point out that incoming data indicate that inflationary pressures remain acute.

“We expect the FOMC to raise the target range for the fed funds rate by 25 bps on May 3, bringing it up to 5.00%-5.25% from 0.00%-0.25% only 14 months ago. We also anticipate that the Committee will continue quantitative tightening (QT) at its current pace.”

“We believe the statement and press conference likely will signal that May's hike may very well be the last of this tightening cycle. In March, the so-called "dot plot" showed that 11 of the Committee's 18 participants viewed a fed funds rate of 5.00%-5.25% or lower at year-end 2023 as the most likely outcome, a view that has not seemed to have been swayed by the latest data.”

“If most officials see the May meeting as likely to be the final hike this cycle, then we would expect the statement to no longer include the phrase that "some additional policy firming may be appropriate."

“We do not think the statement will fully close the door on further rate hikes, given that inflation remains well above target. Rather, the statement likely will include an acknowledgement that further adjustments in rates are possible. The outlook will be based on the Committee's assessment of cumulative tightening of monetary policy, the lags of policy on economic activity and inflation, and economic and financial developments.”