Federal Reserve Cautious on Rates Amid Tariff Impact/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ The Federal Reserve is expected to keep interest rates unchanged as it monitors inflation risks tied to President Trump’s sweeping tariffs. While the White House urges rate cuts, the Fed remains cautious, balancing price stability with economic growth. Uncertainty around tariffs and consumer expectations makes the timing of any rate change unclear.
Federal Reserve Policy Quick Looks
- Fed likely to hold rates steady amid tariff uncertainty.
- Trump criticizes Fed Chair Powell, pushing for rate cuts.
- Inflation remains near 2%, but risks are rising.
- Tariffs on China and others may drive up prices.
- Businesses delay investment, fearing trade policy instability.
- Fed expected to stay cautious through at least September.
- Rate cuts could follow if job market weakens.
Deep Look: Fed Balances Inflation Risks with Economic Growth Amid Trump Tariffs
As economic tensions rise, the U.S. Federal Reserve is walking a fine line between curbing inflation and encouraging economic growth. The central bank is widely expected to keep its benchmark interest rate unchanged at the conclusion of its policy meeting this week, reflecting concerns over the unpredictable economic effects of President Donald Trump’s expansive tariff policy.
At the heart of the Fed’s caution are new tariffs—most notably a 145% duty on all Chinese imports—that have the potential to simultaneously slow economic growth and accelerate inflation. Trump has publicly called on the Fed to cut rates, even attacking Fed Chair Jerome Powell personally, claiming Powell “just doesn’t like me.” Still, the central bank is prioritizing a wait-and-see approach amid mounting uncertainty.
While the White House argues that inflation is sufficiently under control to warrant a rate cut, the Fed remains wary. Officials are closely evaluating whether these tariffs will result in short-term price spikes or more persistent inflationary trends. Chair Powell and policymakers understand that acting too soon could backfire if inflation expectations spiral.
“It’s hard for them to cut sooner because they’ve got to weigh, what’s the inflation impact?” said Nationwide chief economist Kathy Bostjancic. She noted the central bank may wait until at least September before considering any rate reduction.
Inflation expectations are a critical factor. If consumers anticipate higher prices, they may push for wage hikes or spend more now, creating self-fulfilling inflation. The Fed watches these trends closely. While inflation has cooled significantly from its 2022 peak, ongoing tariffs on consumer goods and threatened duties on pharmaceuticals, semiconductors, and copper may reignite price pressures.
According to a Federal Reserve Bank of Dallas survey, 55% of manufacturers plan to pass higher input costs on to consumers. Surveys also reveal rising costs in both the services and manufacturing sectors, further complicating the Fed’s decision-making.
Yet the risk isn’t just higher inflation—it’s also economic stagnation. Widespread tariffs on around 60 countries, initially set for April 2 but postponed to July 9, have sown confusion in business circles. Many companies are holding off on investment and hiring plans until trade policy becomes clearer.
“The economics of uncertainty are absolutely suffocating,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “Businesses that don’t know the rules of the road, their knee-jerk reaction is to sit on their hands. And that’s what they’re doing.”
Such delays in business activity could stall job growth and slow the economy, which may ultimately prompt the Fed to lower interest rates. A weakening job market could reduce inflation naturally, giving the Fed room to shift its policy stance.
“If you felt like the economy was really slowing down, then I think that would probably take precedence,” said Jim Bullard, former president of the Federal Reserve Bank of St. Louis, now at Purdue University. “That will also drag inflation somewhat with it.”
Despite strong consumer spending and a stable job market for now, economists warn of brewing pressure. Some consumers are making large purchases ahead of new tariffs, potentially masking deeper vulnerabilities. The Trump administration’s recent trade decisions have introduced more economic headwinds than expected, Powell said last month.
In March, the Fed signaled openness to two rate cuts in 2025. However, Trump’s aggressive tariff rollout has reshaped that outlook. The policy shift—both larger and broader than anticipated—could drive up prices while also curbing economic output, placing the Fed in a rare policy bind.
Traditionally, central banks cut rates to support a slowing economy or raise them to prevent inflation from overheating. The current climate demands both actions simultaneously, leaving Powell and the Federal Open Market Committee with few easy choices.
The Fed’s guiding principle remains anchored in ensuring price stability—a prerequisite, Powell insists, for sustainable job growth. “Without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans,” he said recently.
Whether the Fed holds steady, cuts, or eventually raises rates will depend on how tariffs impact inflation, employment, and business confidence over the next few months. For now, caution prevails.
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