Federal Reserve Chair Jerome Powell signaled that U.S. economic growth could slow while inflation rises, citing the impact of President Donald Trump’s import tariffs. Following the Fed’s decision to keep its benchmark rate at 4.25%-4.50%, Powell acknowledged "unusually elevated" uncertainty among policymakers.
Trump’s aggressive tariff policies have fueled economic concerns, with inflation now expected to reach 2.7% by year-end, up from the 2.5% forecast in December. Meanwhile, economic growth projections for 2025 were revised down to 1.7% from 2.1%. The Fed remains cautious, with Powell stating, “We’re not going to be in any hurry to move.”
The tariffs, including a 25% levy on Mexican and Canadian imports set for April, could push consumer prices higher, impacting businesses and households. Powell noted that the Fed will closely monitor inflation trends and their effect on consumer sentiment. Though short-term inflation expectations have risen, long-term indicators remain stable, offering policymakers some flexibility.
The central bank has cut interest rates by a full percentage point since last year but is waiting for more clarity on Trump’s economic policies before adjusting further. Despite market uncertainty, major U.S. stock indices closed higher after the Fed’s statement, while Treasury yields eased.
Traders now see a 62% chance of a rate cut in June, up from 57% before the announcement. Powell emphasized that the Fed is prepared to adjust policy as needed, depending on inflation and employment data. The Fed also announced plans to slow the drawdown of its $6.81 trillion balance sheet, with Governor Chris Waller dissenting on this decision.
With the economy at a crossroads, the Fed’s cautious stance reflects the ongoing challenges posed by trade policy shifts and inflationary pressures.