US President Donald Trump and Federal Reserve Chairman Jerome Powell surprised investors with their views on tariffs’ impact on the economy, hinting at a possible tightening of interest rates to combat inflation.
The Fed held its monetary policy steady at 4.375%, but forecasted lower GDP growth due to renewed price pressures from tariffs. This has raised concerns about the potential for a recession, with JP Morgan Chase estimating a 40% chance of a US recession in the coming months.
Powell stated that the new forecasts were “challenging” and showed elevated uncertainty, emphasizing that policy is not set on a preset course. However, he also warned that tariffs’ impact would be short-lived if inflation remains transitory.
Trump urged the Fed to lower rates as U.S. tariffs start to ease into the economy. The White House plans to impose trillions of dollars in tariffs on April 2, dubbed “Liberation Day”, in addition to delayed duties on Canada and Mexico.
The market’s reaction has been mixed, with some experts warning that the Fed ‘put’ is gone after the recent stock market correction, which has lost over $4 trillion from the S&P 500. Others caution against a false sense of policy stability, as the Fed could rapidly turn more dovish or hawkish on inflation expectations.
The uncertainty surrounding tariffs and interest rates has left investors guessing, with wide error bands around forecasts. The US economy is now at a highly uncertain point, requiring time and data to determine its next course of action.
Source: https://www.thestreet.com/economy/trump-pressures-powell-on-rates-but-tariff-risks-leave-both-handcuffed