The Fed’s last meeting on May 1 seems like ages ago. Chair Powell sounded decidedly neutral, dismissing a slowdown in inflation as transitory and noting some improvement in risks to the outlook—all of which was consistent with a patient approach to setting monetary policy. Since then, we’ve seen tariff hikes on nearly $200 billion in Chinese imports, a general increase in uncertainty about US trade policy, signs of softer growth abroad, and emerging weakness in the US industrial sector. Those developments have investors expecting a response from the Fed. While a move next week is unlikely, markets are pricing in at least two rate cuts over the second half of this year, including a 25-basis-point cut in July.

With limited expectations for a policy change, Wednesday’s announcement is all about tone. One of the Fed’s more dovish members has publicly mused about lowering rates, but otherwise the Fed has done little to validate market pricing. Chair Powell was fairly vague in recent comments, noting the Fed is “closely monitoring” implications of trade developments and that policymakers will “act as appropriate to sustain the expansion.” Powell might not go much further than that in his comments next week. But simply reiterating that the Fed stands ready to act might be enough encouragement for markets. Attention will also be on the dot plot, which in March showed no committee members expecting the central bank would need to lower interest rates in the coming years. Markets are sure to key in on whether some of the FOMC now thinks easing will be appropriate.

While keeping an eye on the Fed, the Bank of Canada will also have plenty of domestic data to digest next week. The first release—the April manufacturing report—may get the most attention as markets look for signs that rising trade tensions are hurting the Canadian economy. We look for manufacturing sales to fall 0.7% in April, partially due to retracement of the previous month’s gains in motor vehicle and aircraft shipments. The two other Canadian data releases are more consumer-focused. We’re expecting April retail sales to be little changed as higher debt-service costs remain a headwind for household spending. Meanwhile, low, stable inflation has been a positive for consumers, and we expect next week’s CPI release will show that trend continuing.

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