Powell: The Federal Reserve is in no hurry to cut interest rates; the outlook depends on the White House

The Zhitong Finance App learned that Federal Reserve Chairman Powell clearly stated that until the direction of trade policy is more determined, he will not rush to reduce borrowing costs, and the direction of trade policy must be determined by the White House. Powell and his colleagues kept interest rates unchanged on Wednesday and said at the first meeting since US President Trump announced full tariffs last month that the risk of rising inflation and unemployment had increased.

Powell said this situation will force the Federal Reserve to make a difficult choice between reducing borrowing costs to support the job market and maintaining borrowing costs to contain price pressure. At the same time, he said uncertainty about the scope and size of tariffs — and the outcome of upcoming trade negotiations — will cause policymakers to put action on hold for the time being. On Wednesday, the Federal Reserve Interest Rate Committee voted unanimously to maintain the benchmark federal funds rate in the 4.25% to 4.5% range since December last year.

James Egelhof, chief US economist at BNP Paribas, said: “In the absence of a decisive shift in US economic data, the Federal Open Market Committee (FOMC) seems willing to keep interest rates unchanged indefinitely. The FOMC is waiting to determine whether the next step is to cut interest rates based on the economy going into recession or adopt stricter policies because high inflation is deeply entrenched in the economy.”

Trump announced a series of peer-to-peer tariffs that exceeded expectations on April 2, but then suspended some of them for 90 days. The intermittent nature of tariffs, combined with a lack of clarity on where trade policies will eventually be settled, has caused a wave of uncertainty throughout the economy. Although tariffs are still being negotiated, economists generally expect that large-scale tariffs will boost inflation and slow down economic growth.

Powell has always been harshly criticized by Trump for not pushing for interest rate cuts. In repeated conversations with reporters, the Federal Reserve Chairman emphasized that the White House is in a better position to address growing risks and uncertainties, and it seems that it is indeed moving in this direction. Representatives from the US and China will meet in Switzerland later this week to discuss tariffs.

Powell said, “At the end of the day, this is what the government wants to do. It's their job, not ours. It appears that we are entering a new phase, and the government has begun negotiations with some of our key trading partners, which has the potential to fundamentally change the situation.”

Concerns about the US recession have intensified, and some businesses have reported that they have suspended investment decisions due to this uncertainty. Despite this, the labor market remained resilient, and 177,000 non-farm payrolls were added in April. According to the statement, Federal Reserve officials said the labor market situation was “stable.” Powell acknowledged that consumer and business confidence was bleak amid the unstable tariff statement, but he said that hard data still paints a healthy economic picture.

Claudia Sahm, chief economist at New Century Advisors, said: “I think, in general, when we look at the Federal Reserve, they have much less of a 'cosmic dominance' vibe right now. The Federal Reserve largely depends on the policies introduced by the White House.”

Economists say the full impact of the new tariffs will take time to take effect in the economy. So far, the impact has mainly included a sharp decline in confidence and a surge in imports. At the beginning of this year, the US economy experienced its first quarterly contraction since 2022, but one measure of potential demand remained strong.

According to the futures market, investors still expect to cut interest rates about three times this year, and the chance of cutting interest rates as early as July is about 85%. Most economists and investors don't expect the Federal Reserve to cut interest rates at its next meeting in June.

Ellen Meade, professor of economics at Duke University and former special adviser to the Federal Reserve Committee, said, “By June, you won't have data that can actually give you enough information. You probably first thought of July, but frankly, I think it's September, and I don't even believe they'll cut interest rates.”