The Federal Open Market Committee opens its two day May policy meeting Wednesday morning at the William McChesney Martin Building in Washington. The meeting concludes Thursday afternoon with a written policy statement at two o'clock Eastern and a press conference from Federal Reserve Chair Jerome Powell at two thirty Eastern. Fed funds futures as of Tuesday afternoon priced a ninety-two percent probability of a hold at the current target range of four and a quarter to four and a half percent. The probability of a quarter point cut sat at eight percent, with the consensus among major bank rate strategists pointing to no change.
The June meeting is where the more substantive debate now centers. CME FedWatch data Tuesday afternoon showed a sixty-four percent probability of a quarter point cut at the June seventeenth and eighteenth meeting. That probability has shifted upward over the last two weeks as oil prices spiked on the situation in the Strait of Hormuz and as the April nonfarm payrolls report came in slightly below consensus. Goldman Sachs, JPMorgan, and Bank of America economists have all maintained calls for a June cut, with three additional cuts penciled in over the second half of 2026 in the consensus forecast.
The April employment report released on May second showed nonfarm payrolls increased by one hundred forty thousand, below the consensus estimate of one hundred seventy-eight thousand. The unemployment rate held at four point three percent. Average hourly earnings rose three point six percent year over year, a slight deceleration from March. The combination of cooling job growth and stable wage pressure is the kind of data the Fed watches when deciding whether the labor market still requires the current restrictive policy stance. Powell described the labor market in his April twenty-ninth speech as quote highly uncertain end quote.
The April Consumer Price Index report released April thirteenth showed headline inflation running at two point eight percent year over year. Core CPI, which excludes food and energy, came in at three point one percent. Both readings remained above the Fed's two percent target but below the levels seen during 2024. The persistent gap between core inflation and the Fed target is the central reason the committee has held rates at the current level since the last cut in December 2025. Three voting members dissented at the March meeting in favor of a cut, the most divided vote since the November 2024 meeting.
Oil prices and the situation in the Persian Gulf complicate the inflation picture in real time. Brent crude traded at one hundred twelve dollars and ninety cents Tuesday afternoon after pulling back from a Monday high of one hundred fourteen dollars and forty-four cents. The retreat followed comments from Defense Secretary Pete Hegseth describing US naval posture as defensive and temporary. A sustained period of elevated oil prices would feed through to headline inflation in the May and June CPI reports, which the committee will see before its June meeting. The energy sector remains the top performing sector year to date in 2026, up thirty-eight point four percent.
For Black communities and small business owners in Nashville and across Tennessee, the practical impact of the rate decision tomorrow is small in the immediate term. Mortgage rates moved within a tight range in late April. The thirty year fixed rate sits at seven point two five percent according to Freddie Mac data published Thursday. A hold at this meeting keeps that rate roughly where it is. A rate cut at the June meeting would likely pull mortgage rates lower by ten to twenty basis points, depending on the path of the ten year Treasury yield. The ten year traded at four point three nine percent Tuesday.
Credit card rates and small business lending rates are tied more directly to the federal funds rate than mortgage rates are. The average credit card rate in the United States sits at twenty-three point one percent according to Federal Reserve consumer credit data. A quarter point cut would lower carrying costs by roughly twenty-five dollars per year on a ten thousand dollar balance, a small change at the household level but a meaningful one across the broader economy. Small Business Administration loan rates, which are pegged to the prime rate plus a margin, would also adjust by roughly the same amount.
Tennessee Senator Bill Hagerty has not made a public statement on the meeting. Memphis Congressman Steve Cohen, in remarks delivered Friday, called for the Federal Reserve to provide more transparency about the path of rates through the second half of the year, citing the impact of restrictive policy on first time homebuyers and small business credit availability. Powell will take questions Thursday at two thirty Eastern, and his comments on the labor market and the path of cuts through the rest of 2026 will be the primary market-moving content from the meeting. The next major economic data point after the meeting is the May Consumer Price Index report on June eleventh.
