The News
The US Federal Reserve decided to hold its key interest rate steady Wednesday, as the central bank tries to parse the possible economic fallout of President Donald Trump’s tariff regime.
The unanimous decision represents the third time this year that the Fed has taken a “wait and see” approach on borrowing rates as it balances its so-called “dual mandate” to keep inflation low and unemployment steady.
“My gut tells me that uncertainty for the path of the economy is extremely elevated,” said Fed Chair Jerome Powell after the announcement.
Having exacted some punishing new tariffs and delayed others, the Trump administration is in trade talks with many nations that could dramatically change the US economic outlook in the coming months, with economists increasingly predicting a recession in the next year.
“Usually things clarify and the appropriate direction becomes clear,” Powell said. In the meantime, he added, the “economy is doing fine.”
SIGNALS
With ‘wait-and-see’ approach, Fed appears to be trying not to rattle any cages
During Wednesday’s press conference, Fed Chair Jerome Powell repeated about a dozen times that the bank will “wait and see” what happens to the US economy before cutting interest rates, despite reporters’ persistent questions about what, exactly, the Fed is waiting for. While economists have increasingly warned of a recession, Powell emphasized that the economy remains resilient. Powell has said before that he perceives his job to be a source of calm and stability amid trying economic times. Still, analysts pointed to Powell’s repeated emphasis on uncertainty: “Even though [Powell] didn’t give specific guidance about a future rate cut, his language suggests that the next cut is quite far down the road,” a senior investment strategist at Charles Schwab told CNN.
Economists are waiting for the data to catch up to other recession indicators
While economists and American consumers are increasingly predicting there will be a recession, traditional economic data to back that up has yet to surface, The New York Times reported. The lack is reminiscent of the early days of the COVID-19 pandemic, when experts forecast what was coming and looked for proof in unconventional metrics, like live events attendance, well before the recessionary effects later showed up in unemployment and inflation reports. When recession indicators appear in hard data depends on how quickly and at what intensity Donald Trump’s tariffs take and remain in effect. If his “Liberation Day” tariffs go ahead, Powell said, “they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment.”
Powell is blocking out the noise — he needs to keep it that way, economists say
After the last Federal Open Market Committee meeting, at which the central bank also decided to hold rates steady, Donald Trump renewed his threat to fire Fed Chair Jerome Powell and called on the committee to lower the cost of borrowing — Trump has since walked back the threat. During Wednesday’s press conference, Powell said the criticism does not affect his or the central bank’s job “at all.” Economists seem keen for Powell to stay deaf: Speaking to The New York Times, economist Rebecca Patterson said Powell and the Fed are “staying above the noise. Any sense that the Fed was acting for reasons not tied to its mandate — because of political pressure, for example — would be a disaster.”