Fed to Hold Interest Rates Amid Trump Policy Uncertainty

Fed to Hold Interest Rates Amid Trump Policy Uncertainty \ Newslooks \ Washington DC \ Mary Sidiqi \ Evening Edition \ Federal Reserve Chair Jerome Powell said Friday that the central bank will likely keep interest rates steady as it monitors the economic impact of President Donald Trump’s trade and tax policies. Speaking at a conference in New York, Powell noted that uncertainty surrounding tariffs, deregulation, and government spending has made it difficult to predict the economy’s trajectory. While businesses express concerns over Trump’s policies, Powell said the economy remains mostly stable, though consumer spending has slowed and inflation concerns persist.

Fed’s Response to Trump’s Economic Policies: Quick Looks

• Interest Rates Likely to Stay Unchanged – The Fed sees no rush to cut rates amid uncertainty.
• Trump’s Trade and Tariff Policies Create Volatility – Tariffs could raise prices and slow growth.
• Consumer and Business Confidence Declining – Spending has weakened, raising economic concerns.
• Bond Market Reacts – Treasury yields rise as traders adjust rate-cut expectations.
• Inflation Still Above Target – Powell sees tariffs as a risk, but not yet a long-term concern.

Deep Look

Fed to Hold Interest Rates Steady Amid Trump’s Economic Uncertainty

Federal Reserve Chair Jerome Powell said Friday that interest rates will likely remain unchanged for the coming months, citing significant uncertainty stemming from President Donald Trump’s economic policies.

Speaking at the University of Chicago Booth School of Business Conference in New York, Powell acknowledged that the Trump administration’s mix of tariffs, tax cuts, deregulation, and government spending policies has created a highly unpredictable economic landscape.

“While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their likely effects remains high.” – Jerome Powell

Powell’s comments cooled expectations for multiple rate cuts this year. Many investors had expected at least three rate reductions, but his remarks led traders to revise their forecasts, sending Treasury yields higher.

Trump’s Tariffs: A Risk for Inflation and Growth

Trump’s aggressive tariff policies have fueled concerns over inflation and slower economic growth.

• The 25% tariffs on imports from Canada and Mexico, which Trump partially delayed this week, are expected to raise consumer prices.
• Powell acknowledged that tariffs typically cause “one-time” price increases, but warned that if they escalate into a long-term trade war, inflation could become a bigger issue.
• Treasury Secretary Scott Bessent echoed Powell, stating that tariffs would likely cause “a one-time price adjustment” but not long-term inflation.

However, Powell warned that the Fed must be cautious if tariffs become larger or more frequent:

“If it turns into a series of tariff hikes, or if the increases are larger, that would matter.” – Jerome Powell

Consumer Confidence and Business Uncertainty Declining

Uncertainty over Trump’s economic policies has lowered business and consumer confidence, slowing growth expectations.

• The Fed’s Beige Book report, which compiles business sentiment across the U.S., mentioned “uncertainty” 47 times in its latest edition—up from just 17 mentions in January.
• Consumer sentiment surveys have shown declining confidence, though Powell admitted these indicators have been unreliable in predicting actual spending patterns.

How the Market is Reacting

Powell’s speech had immediate effects on financial markets:

• Bond yields rose as traders adjusted their expectations for fewer rate cuts this year.
• Rate-sensitive sectors, including housing and banking, reacted cautiously.
• Stock markets showed mixed responses, reflecting uncertainty about future Fed policy.

Trump’s Past Tariffs Led to Fed Rate Cuts

Powell reminded the audience that when Trump imposed tariffs during his first term, the Fed responded by cutting rates.

“When Trump imposed tariffs in his last administration, the Fed ended up reducing its key rate because growth weakened so much.” – Jerome Powell

This raises questions about whether history will repeat itself, especially as Trump continues to escalate trade tensions.

Inflation: A Stubborn Challenge for the Fed

Powell acknowledged that while short-term inflation expectations have risen, longer-term expectations remain stable.

• The Fed’s preferred inflation gauge showed a 2.5% increase in January, above its 2% target.
• Core inflation (excluding food and energy) rose 2.6%, the smallest increase since June.

This means the Fed has little urgency to cut rates, as inflation is still above target but showing signs of slowing.

Will the Fed Cut Rates This Year?

Fed Governor Christopher Waller suggested that while rate cuts are possible later this year, they must be for the right reasons.

“There are ‘good news’ cuts and ‘bad news’ cuts.” – Christopher Waller

• Good news cuts occur when the Fed lowers rates because inflation is declining to the 2% target.
• Bad news cuts happen when the economy slows too much, forcing the Fed to intervene with rate reductions.

Waller believes the Fed still has room for “good news” cuts later this year, but ruled out any rate cuts at the Fed’s next meeting.

What’s Next for the Economy and the Fed?

1. No Immediate Rate Cuts – Powell’s comments suggest the Fed will wait for greater clarity before making changes.
2. Monitoring Trump’s Policies – The Fed is closely watching how tariffs, tax changes, and spending policies impact the economy.
3. Jobs and Inflation Data Will Be Key – Future employment and inflation reports will determine if rate cuts happen in 2024.
4. Trump’s Trade War and Global Impact – If tariff escalations continue, the Fed may have to adjust its stance.

Conclusion

The Federal Reserve will likely keep interest rates steady, as economic uncertainty under Trump’s policies clouds the outlook.

• Trump’s trade policies, tariffs, and deregulation efforts are fueling volatility.
• The Fed remains cautious, waiting for more economic clarity.
• Investor expectations for multiple rate cuts have now weakened.

While the U.S. economy remains mostly stable, Powell warned that continued uncertainty could alter the Fed’s course in the months ahead.

More on US News

Fed to Hold Interest