MNI FED WATCH: Powell Signals No Cut 'Til Tariff Effects Clear

Federal Reserve Chair Jerome Powell signaled Wednesday the FOMC is prepared to hold interest rates where they are until the effects of tariffs on inflation, jobs and growth are more evident in the economic data. 

Three months of favorable inflation readings since February is welcome news, the Fed chair said, but fresh FOMC projections showed the median official expects headline and core inflation to end the year three-tenths higher than he or she did in March, rising to 3.0% and 3.1%, respectively. 

"The size of the tariff effects, their duration and the time it will take are all highly uncertain. That is why we think the appropriate thing to do is to hold where we are as we learn more," Powell told reporters after the FOMC maintained rates at a 4.25%-4.5% target range for a fourth straight meeting. 

"We think our policy stance is in a good place where we're well-positioned to react to incoming developments." (See MNI INTERVIEW: Fed Surveys Track Which Firms Will Raise Prices)

Powell downplayed the central bank's Summary of Economic Projections, which showed quite a bit of variance in participants views for how many rate cuts might be delivered this year -- ranging from zero to three. "No one holds these rate paths with a lot of conviction," he said.

INFLATION 

The Fed is beginning to see some effects of tariffs on consumers and expects to see more, Powell said. Goods inflation has risen a bit, and price increases in computers and audio-visual equipment are also attributable to tariffs, he said. 

"Many, many companies do expect to put some or all of the effect of tariffs through to the next person in the chain. And ultimately, to the consumer," Powell said. "It takes some time for tariffs to work their way through the chain of distribution."  

However, Fed officials generally expect inflation to come back down and, while renewed conflict in the Middle East could send energy prices higher, such moves don't generally have lasting effects on inflation, Powell said. The median FOMC member sees headline and core inflation retreating to 2.4% by the end of 2026, an upward revision from the March SEP.   

The Fed will watch the data carefully and will make sure that a one-time increase in inflation doesn't turn into an "inflation problem," Powell said, adding that will depend on the size and timing of the effects and keeping inflation expectations anchored.  

HEALTHY JOBS MARKET

Adding to the case for staying on hold are a solid economy and labor market, Powell said. 

Officials raised their forecasts for unemployment just a tenths or so over the next few years, and labor force participation, wages and job creation are all at healthy levels now, he said. GDP growth is expected to end the year at 1.4%. 

"The labor market's not crying out for a rate cut," he said. "You can see perhaps a very, very slow continued cooling. But nothing that's troubling at this time."  (See MNI INTERVIEW: Hiring Softer But Not Enough For Fed Rate Cuts)

Uncertainty over tariffs peaked in April and has since come down, Powell said, adding officials expect to learn more over the summer. "There's a different feeling now that people are working their way through this, and they understand how they're going to go. And it feels much more positive and constructive than it did three months ago."