Moderate Price Growth and Fed Expectations: What’s Next?

Fed Holds Steady—But for How Long?

The Federal Reserve paused rate hikes in recent meetings, maintaining its 4.25–4.50% policy range to balance inflation control with growth. Yet:

• Tariff Lag: U.S. tariffs introduced under the Trump administration on imported goods have not fully passed through to consumer prices. As those costs ripple through supply chains, inflation could re-accelerate later in 2025.

• Market Timing: CME FedWatch futures now price in a strong probability of at least one 25-basis-point cut in the federal funds rate by Q3 or Q4. Investors debate whether the Fed will preemptively ease or await firmer proof of sustainable price stability.

• Risks Ahead: Early rate cuts could embolden borrowing but risk stoking asset bubbles, while delayed easing risks tipping the economy into recession if credit conditions remain tight.

April CPI—Low but Watchful

Month-over-Month: Prices rose +0.2% in April (vs. +0.3% consensus), rebounding from March’s -0.1% decline.
Year-over-Year: Inflation slowed to +2.3% (vs. +2.4% forecast; matching March’s rate). This marks the lowest annual CPI since February 2021.

Key Takeaways:

1. Inflation at Fed’s Doorstep: Headline CPI is now within striking distance of the Fed’s 2% target, but core services and shelter costs remain elevated.

2. Tariff Uncertainty: Despite hefty import duties, prices have remained surprisingly benign—until lagged tariff pass-through occurs.

3. Policy Implications: Continued sub-3% inflation gives Fed cover to hold rates steady, but upward surprises could delay or derail planned easing.

Riyadh Roundtable—Tech Titans and Statesmen

In Riyadh, a high-profile business lunch convened:

• Donald Trump and Saudi Crown Prince engaged on U.S.–Gulf trade and investment strategies.

• Elon Musk and Jensen Huang (NVIDIA) explored next-gen AI chips and data-center projects.

• Sam Altman (OpenAI) discussed generative AI’s promise and governance.

• Senior executives from IBM, Citi, Boeing, and Amazon shared insights on semiconductors, cloud infrastructure, and defense tech.

Why It Matters:

• Capital Flows: Saudi-backed ventures may fund AI- and blockchain-focused funds, creating a new Middle East tech hub.

• Market Signals: The gathering signals deepening state-corporate partnerships, likely boosting relevant equities and crypto tokens tied to AI infrastructure.

Jim Cramer on NVIDIA’s Upside

CNBC’s Jim Cramer called NVDA “one of the best entry points right now,” citing:

• AI Chip Demand: Surge in H100 and Grace deployments for data centers.

• Strategic Deals: Potential multi-billion-dollar sales to Gulf states.

• Valuation Rebound: Recent pullback after a 30% rally creates a buying opportunity around $500–$550 ahead of a forecasted $700–$800 range.

Robinhood Acquires WonderFi

Commission-free broker Robinhood announced a C$250 million ($179 million) purchase of Canadian crypto platform WonderFi, aiming to:

• Expand Globally: Leverage WonderFi’s regulatory licenses in Canada and Europe.

• Broaden Products: Add DeFi, staking, and OTC services to Robinhood’s crypto offerings.

• Strengthen Trust: Regulatory compliance in multiple jurisdictions enhances institutional appeal.

Coinbase Joins the S&P 500

On May 19, Coinbase (COIN) will replace Discover Financial Services in the S&P 500—the first pure-play crypto exchange in the index.

• Institutional Inflows: Indexed funds and ETFs tracking the S&P 500 must now hold COIN shares.

• Mainstream Validation: Marks a milestone for crypto’s integration into traditional financial benchmarks.

Gallup: Shifting Investor Preferences

Gallup’s latest survey finds:

• 37% name real estate as the best long-term investment (down from 45% in 2022).

• 23% choose gold.

• Only 16% prefer stocks and mutual funds (versus 22% in 2024).

Insight: Heightened geopolitical risks and market volatility have driven investors toward perceived safe havens, signaling persistent caution despite easing inflation.

CONCLUSION

Moderate CPI prints and a temporary tariff truce give the Fed breathing room, but delayed price pressures from import duties and geopolitical uncertainties remain on the horizon. Meanwhile, marquee tech gatherings, strategic acquisitions by Robinhood, and Coinbase’s S&P 500 entry underscore the evolving nexus of traditional finance, technology, and crypto. As the markets await May’s key inflation data and Fed speeches, investors should balance macro views with specific tactical plays in AI- and crypto-related equities.