Fed's ‘Wait and See' Approach Is Intact as New Risks Cloud Economic Outlook
Through all the twists and turns of President Trump's tariffs, a widespread immigration crackdown and the scuffles surrounding the Republican tax and spending bill, the Federal Reserve has stayed steady in its stance that it can go slow in taking action on interest rates.
That message holds as officials gather on Tuesday for a two-day meeting, at which they are set to extend a pause in rate cuts that has been in place since January. It is also likely to endure throughout the summer, giving the Fed at least a couple more months before it must make a difficult decision about when and by how much to lower borrowing costs.
'As long as the labor market continues to look solid but inflation continues to mainly move sideways, it's going to be a 'wait-and-see' situation,' said Jon Faust, a fellow at the Center for Financial Economics at Johns Hopkins University and a former senior adviser to Jerome H. Powell, the Fed chair.
When the central bank sets monetary policy, it has two goals in mind: keep inflation at 2 percent and ensure that the labor market is healthy. Currently, both aims are in sync.
Inflation has stayed remarkably stable in recent months. The latest Consumer Price Index report, released last week, showed price pressures remain well contained. Employers are hiring less than they once did and fewer workers are entering the labor force, but layoffs have yet to rise in a meaningful enough way to lift the unemployment rate.
The economy has all the makings of a soft landing, a rare feat in which the central bank tames inflation without pushing the economy into a recession. But such an outcome is not guaranteed. Mr. Trump's policies have stoked fears that inflation will eventually re-accelerate, growth will slow and the labor market will weaken, forcing officials to make a tough decision about which of their goals to prioritize.
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