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Central bank expected to hold rates steady on Wednesday

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Fed faces White House pressure to cut rates

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Tariff developments in focus as trade hopes boost stocks

By Lewis Krauskopf

NEW YORK, May 2 (Reuters) - The Federal Reserve meeting

in the coming week is set to test the U.S. stock market's sharp

rebound, with investors hoping the central bank is poised to

resume lowering interest rates in the months ahead.

During the rally, stocks have erased the slump set off by

President Donald Trump's sweeping tariffs. After gaining on

Friday, the S&P 500 was up 0.3% since April 2, when

Trump's "Liberation Day" tariff announcement sent stocks

plunging and led to some of the market's most volatile swings in

50 years.

While the Fed is widely projected to hold borrowing costs

steady in its monetary policy statement on Wednesday, market

pricing indicates expectations that the central bank could cut

as soon as June, although odds of such a move dimmed following

Friday's solid U.S. jobs report.

"The Fed is one of the few levers that can be pulled in a

timely fashion that can support market activity," said Dominic

Pappalardo, chief multi-asset strategist at Morningstar Wealth.

"If they start to signal that their inflation concerns are

waning, that suggests they are closer to a cut, and I think that

will be well received by markets."

Trump's tariffs loom over policy decisions for central bank

officials weighing concerns about a potential economic downturn

against worries that tariffs will drive inflation higher.

Data this week showed the U.S. economy contracted in the

first quarter for the first time since 2022, but many analysts

discounted the report, saying the weakness was driven by a surge

in imports as businesses sought to avoid higher costs from

tariffs.

After cutting by one percentage point last year, the Fed has

held its benchmark rate at 4.25% to 4.5% so far in 2025. Fed

funds futures are factoring in at least three more 25-basis

point cuts by December, according to LSEG data. The amount of

expected easing this year fell after data on Friday showed U.S.

employment increased by a higher-than-expected 177,000 jobs in

April.

The White House has raised pressure on the central bank to

cut rates, with Trump harshly criticizing Fed Chair Jerome

Powell, who has said the Fed would await more data on the

economy's direction before changing rates.

Last month, Trump raised the possibility he would seek to

fire Powell, setting off market worries about damage to the

Fed's independence. Trump later appeared to back off.

At next week's meeting, Powell "might continue to sound

hawkish to push back on the narrative that the Fed is going to

be influenced by the White House," said Angelo Kourkafas, senior

investment strategist at Edward Jones.

Even after nine straight sessions of gains, the index's

longest streak of daily increases since 2004, the S&P 500

remains down 7.5% from its February record high. Last month, the

benchmark index dropped nearly 20% below that peak.

Corporate results reports over the past few weeks have

generally exceeded expectations. With about two-thirds of the

S&P 500 having reported, companies in aggregate are posting

earnings 7% above expectations versus a long-term average of

4.3% above estimates, according to LSEG IBES.

Shares of megacaps Microsoft ( MSFT ) and Facebook parent

Meta Platforms ( META ) gained on Thursday after their results,

boosting equity indexes. Results in the coming week include Uber

Technologies ( UBER ), Walt Disney ( DIS ) and ConocoPhillips ( COP )

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Trade developments will remain in focus, with investors

saying the market's rebound came on optimism that tensions were

easing and that deals with other countries were progressing.

Trump on April 9 paused hefty import levies on many countries

for 90 days, as the U.S. negotiates with other countries. That

move sent stocks soaring.

"The market wants to see, and expects to see, some solid

signed deals with some of our trading partners," said Scott

Wren, senior global market strategist at the Wells Fargo

Investment Institute.

"The market is anticipating something, and it's time for the

rubber to hit the road."