Powell Stays in Wait-and-See Mode on Impact of Tariffs
This is Washington Edition, the newsletter about money, power and politics in the nation's capital. Today, senior economy reporter Enda Curran looks at what the Federal Reserve chair had to say about tariffs and the economy. Sign up here and follow us at @bpolitics. Email our editors here.
Federal Reserve Chair Jerome Powell pithily summed up how he assesses the economic impact of Washington's rolling policy shocks, including a full blown trade war.
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Forbes
an hour ago
- Forbes
What Markets Forecasts For Interest Rates In 2025
WASHINGTON, DC - SEPTEMBER 18: Federal Reserve Chairman Jerome Powell speaks during a news ... More conference following the September meeting of the Federal Open Market Committee at the William McChesney Martin Jr. Federal Reserve Board Building on September 18, 2024 in Washington, DC. The Federal Reserve announced today that they will cut the central bank's benchmark interest rate by 50 basis points to a new range of 4.75%-5%. (Photo by) Markets expect the Federal Open Market Committee to cut rates between one and three times in 2025 from their current level of 4.25% to 4.5%. However, the first cuts may not come until the fall on the market's current view as tracked by the CME FedWatch Tool. The FOMC is expected to hold rates steady in June and, most likely, in July, too. That might leave the first cut of the year until September, with perhaps a second cut in December. Nonetheless, despite the predictions of fixed income markets, FOMC officials have largely spoken of a wait and see approach, meaning that the impact of tariffs and other government policies on the economy will ultimately shape interest rate decisions. Fears of accelerating inflation or slowing growth, which some FOMC policymakers believe are a likely consequence of tariffs, haven't materialized in reported economic data to this point. That arguably gives the FOMC the opportunity to be patient. For example, the unemployment rate has held in a range of 4.0% to 4.2% for the 12 months to May 2025. Without evidence of a weakening labor market and inflation above target, there is little obvious pressure for interest rate cuts. That said, President Trump has been vocal in calling for interest rate cuts. However, the FOMC's monetary policy decisions are independent of the President. Another factor causing relatively restrictive monetary policy for now is that headline inflation is running at 2.4% to May 2025. With more volatile food and energy prices removed, that same figure is 2.8%. This remains above the FOMC's annual inflation goal of 2%. Provided the job market remains robust, the FOMC may be tempted to wait for prolonged, cooler inflation before dropping interest rates. For example, Federal Reserve Governor Adriana Kugler said at a speech on June 5. 'Progress in lowering inflation toward the Committee's 2 percent target has slowed some since last summer, even if headline and core inflation have continued to decline. The FOMC's preferred inflation gauge, based on personal consumption expenditures (PCE), grew at a 2.1 percent annual rate in April. While that is quite close to the FOMC's target, it was dragged down by a decline in energy prices. Core inflation—which excludes volatile prices for food and energy and is a good guide to future inflation—came in at 2.5 percent, so I do believe that our monetary policy stance, which I view as modestly restrictive, is currently appropriate to achieve and sustain 2 percent inflation over the longer term.' This statement was before the most recent Consumer Price Index report for May, though Kugler's comments appear to remain relevant as that CPI report was largely as expected. Even though the jobs market and inflation do not appear to have been impacted by tariffs in recent reports, that could change. Policymakers generally expect tariffs to raise prices to a degree, although how much of any potential cost will be shouldered by importers and exporters relative to consumers remains to be seen. Anecdotal data from statements by major firms implies that price increases from tariffs may be coming in June and July, if so, that won't have been picked up by reported data yet. Furthermore, the consumer reaction to any potential price increases is unknown, too. With five FOMC meetings remaining in 2025, any change in interest rates is expected to be weighted towards later in the year. Modest cuts in interest rates are viewed as likely. That assumes, broadly speaking, that job market continues to remain robust, but the FOMC gains are little more confidence that inflation is returning to 2%. There is a chance that tariffs or other government policies change the economic trajectory as weaker survey data signal is possible, but for now that hasn't been materially evident in reported data. If that remains the case the FOMC may return to cutting interest rates later in 2025. Should the economy unexpectedly weaken, larger and sooner cuts are possible.
Yahoo
5 hours ago
- Yahoo
US Fed set to hold rates steady in the face of Trump pressure
The US central bank is expected to keep interest rates unchanged for a fourth straight policy meeting this week, despite President Donald Trump's push for rate cuts, as officials contend with uncertainty sparked by the Republican's tariffs. While the independent Federal Reserve has started lowering rates from recent highs, officials have held the level steady this year as Trump's tariffs began rippling through the world's biggest economy. The Fed has kept interest rates between 4.25 percent and 4.50 percent since December, while it monitors the health of the jobs market and inflation. "The hope is to stay below the radar screen at this meeting," KPMG chief economist Diane Swonk told AFP. "Uncertainty is still very high." "Until they know sufficiently, and convincingly that inflation is not going to pick up" either in response to tariffs or related threats, "they just can't move," she said. Since returning to the presidency, Trump has slapped a 10 percent tariff on most US trading partners. Higher rates on dozens of economies are due to take effect in July, unless an existing pause is extended. Trump has also engaged in a tit-for-tat tariff war with China and imposed levies on imports of steel, aluminum and automobiles, rattling financial markets and tanking consumer sentiment. But economists expect it will take three to four months for tariff effects to show up in consumer prices. Although hiring has cooled slightly and there was some shrinking of the labor force according to government data, the unemployment rate has stayed unchanged. Inflation has been muted too, even as analysts noted signs of smaller business margins -- meaning companies are bearing the brunt of tariffs for now. At the end of the Fed's two-day meeting Wednesday, analysts will be parsing through its economic projections for changes to growth and unemployment expectations -- and for signs of the number of rate cuts to come. The Fed faces growing pressure from Trump -- citing benign inflation data -- to lower rates more quickly, a move the president argues will help the country "pay much less interest on debt coming due." On Wednesday, Trump urged Fed Chair Jerome Powell to slash interest rates by a full percentage point, and on Thursday, he called Powell a "numbskull" for not doing so. He said Powell could raise rates again if inflation picked up then. But Powell has defended US central bank independence over interest rates when engaging with Trump. - 'Cautious patience' - For their part, Fed policymakers have signaled "little urgency" to adjust rates, said EY chief economist Gregory Daco. He believes they are unwilling to get ahead of the net effects from Trump's trade, tax, immigration and regulation policy changes. Powell "will likely strike a tone of cautious patience, reiterating that policy remains data dependent," Daco said. While economists have warned that Trump's tariffs would fuel inflation and weigh on economic growth, supporters of Trump's policies argue the president's plans for tax cuts next year will boost the economy. On the Fed's path ahead, HSBC Global Research said: "Weak labor market data could lead to larger cuts, while elevated inflation would tend to imply the opposite." For now, analysts expect the central bank to slash rates two more times this year, beginning in September. The Fed is likely to be eyeing data over the summer for inflationary pressures from tariffs, said Ryan Sweet, chief US economist at Oxford Economics. "They want to make sure that they're reading the tea leaves correctly," he said. Swonk warned the US economy is in a different place than during the Covid-19 pandemic, which could change how consumers react to price increases. During the pandemic, government stimulus payments helped households cushion the blow from higher costs, allowing them to keep spending. It is unclear if consumers, a key driver of the economy, will keep their dollars flowing this time, meaning demand could collapse and complicate the Fed's calculus. "If this had been a world without tariffs, the Fed would be cutting right now. There's no question," Swonk said. bys/jgc
Miami Herald
18 hours ago
- Miami Herald
Federal Reserve, White House interest-rate cut battle heats up
The post-pandemic inflation that's been squeezing your grocery and credit-card bills for years takes center stage in Washington in just days. That's when the Federal Reserve Board meets to consider interest rates, a gathering that the White House has been – to put it mildly – strongly trying to influence. Don't miss the move: Subscribe to TheStreet's free daily newsletter The Trump Administration wants the Fed to slash rates immediately by almost half after May inflation and job rates basically held steady despite fidgety action earlier this year. Trump and others say this is to keep the nation from sliding into a recession, or worse, stagflation. Related: CPI inflation report resets interest rate cut bets Many economists say the central bank can't ignore the potential impact to inflation from zigzagging U.S. tariffs in the next three to six months. Energy and oil prices are now considerations due to the latest Middle East conflict. Federal Reserve Board Chair Jerome Powell has been the target of President Trump's usual brash manner towards opponents. The president has taunted the chairman with a string of nasty names and other insults. The most recent invective: "Numbskull.'' Trump's ratcheting rhetoric includes allusions to installing a "shadow" Fed president until Powell leaves on or before his term expires in May 2026. Powell has been mum about his gig and the president's efforts to squeeze him out of hisThe Federal Reserve's dual mandate is to set monetary policy that keeps inflation and unemployment low at the same time. This is often at odds because high interest rates lower inflation but cut jobs. Lower interest rates decrease unemployment rates but increase inflation. The central bank's Federal Open Market Committee, meeting June 17-18, controls the Federal Funds Rate that banks charge each other overnight to borrow money. When that rate goes up, so do interest rates – the cost of borrowing money for us all. This impacts Treasury bond yields, crucial to determining how much banks charge for mortgage rates. The post-pandemic housing market is stalled again this spring because of higher mortgage rates, a crunch hurting first-time or lower-income buyers while many sellers, especially older Americans looking to downsize, are stuck in their nests. The current Federal Funds Rate is between 4.25% and 4.50%. Trump said he wants a cut of 2.0%, up from his earlier demand of 1.0 %, after the May Jobs and CPI reports were cooler than expected. This would add $600 billion back in the pockets of Americans, the president claimed. But not everybody's buying it. Related: Fed official revamps interest-rate cut forecast for rest of this year Economists and market analysts say the Federal Reserve is being prudent because the full depth and breadth of Trump's tariffs and trade deals' economic impact are uncertain. Raphael W. Bostic, president and chief executive officer of the Federal Reserve Bank of Atlanta, said in a recent conference call with reporters that he's "very cautious about jumping to cuts at this point." Bank of America analysts, in a note to clients, said it was unlikely there would be additional cuts to the Federal Funds Rate in 2025 but added that 2026 looked promising. While market watchers expect the Federal Reserve to cut interest rates by 1% next year, the White House is maintaining that the cuts must come now. Related: Bank of America unveils surprising Fed interest rate forecast for 2026 Trump said a drop in interest rates, coupled with his "One Big Beautiful Bill" being chewed over by Congress, would boost the tepid economy. The lagging housing market would get an especially big boost. American consumers have embraced the tariffs with China, Mexico, Canada, and the trade wars, the Trump administration says. Not so fast, say economists, who maintain that tariff-driven lags could start to drag the prices of goods and services in 30 to 90 days as manufacturers and retailers pass the costs onto their customers. Powell is one of the few government officials the president can't fire or 'DOGE' from a job. Trump compensates by slamming Powell with derogatory nicknames like "Mr. Too Late" and a "Major Loser" for the Fed's cautious approach to a rate cut. The president is so ticked that he's threatened to install a "shadow president" to ride out Powell's remaining days. By nominating a new Fed head before Powell's term expires, the expectation is that Powell will resign. Multiple names have bubbled up for that role, with the latest being Treasury Secretary Scott Bessent who's actually been on the same pipe as Trump stoking for a Powell exit. There's no comment from the Fed on the FOMC meeting or Powell on the president. Expectations are interest rates will remain the same in June after the FOMC meets. Central banks in China, Switzerland, the U.K., Japan and Brazil are also expected to decide on interest rates in the coming days. Related: Fed Chair hit with savage message on interest rates The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
