Fed says rate cuts still possible for the US economy – The when and how amid tariffs?

Several Federal Reserve officials this week said that interest rate cuts are still a possibility, but tariffs and market volatility would make any immediate policy changes unreasonable. The two Federal Open Market Committee (FOMC) meetings in 2025 have yielded no borrowing rate cuts this year, and analysts say the upcoming one in May won’t see a cut either. 

Chicago Federal Reserve President Austan Goolsbee told reporters that the Fed is employing a “wait-and-see” approach during a Thursday conference at the Economic Club of New York. 

Goolsbee argued that economic conditions remain too fluid to warrant quick changes in monetary policy.

“I don’t think you should ever take anything off the table. That’s increases, cuts, or holding the same,” Goolsbee told reporters. “But the circumstances now suggest we need to wait and see how these things are getting resolved.”

Fed unsure what to do with tariffs affecting market state

The central concern, according to Goolsbee, is the unpredictability birthed by US trade policy, especially the increase in import prices. President Donald Trump may have lifted tariffs, but many remain in place, with the effective tariff rate estimated to have surged from 2.6% to as high as 26% this year. 

Goolsbee noted that such trade actions could trigger a “stagflationary shock,” where the Federal Reserve will have to tussle with inflation with slow economic growth, conditions that monetary policy is poorly equipped to handle.

Still, Goolsbee mentioned that the US bond market is a relief for the central bank, citing a successful 10-year Treasury auction as a sign of continued investor trust. 

“When there is a flight to safety, it still feels like the safest asset in the world is a long-term Treasury,” he reckoned.

Some financial markets have increasingly priced in expectation of rate cuts, but the central bank is seemingly reluctant to move to the market’s tune. The hope stems from the latest inflation data, which slowed for the second straight month in March 2025, easing to 2.4%, its lowest level since September. The rate declined from February’s 2.8% and came below market expectations of 2.6%.

Yet, major banks now forecast a recession, and investors are bracing for potential job losses. Fed officials have consistently pushed back on calls for immediate action, arguing that the economy’s underlying health does not warrant any rate changes, at least for now.

Goolsbee also admitted that economic data looks favorable but asked markets to remain cautious of lagging indicators that may not yet reflect the effects of tariffs. He reiterated the importance of monitoring all available information closely.

“If longer-run expectations start going up, any central bank almost has to address that regardless of what the other conditions are.”

~ said Goolsbee.

Other officials say rate cuts are needless

Earlier in the week, Minneapolis Fed President Neel Kashkari added his voice to those opposing near-term rate cuts. In an essay released Wednesday, he wrote that the threshold for changing rates has risen because of the inflationary pressure from tariffs.

“In my view, the hurdle to change the federal funds rate one way or the other has increased,” Kashkari said. He warned that even if economic conditions deteriorate and job losses increase, the Fed should keep long-run inflation expectations anchored. 

“Slashing rates prematurely could endanger the foundation of US economic competitiveness,” he added.

Like Goolsbee, Kashkari said market-based measures of inflation expectations are his preferred gauge to press on cutting rates, or leaving things as is. While one-year expectations have risen, he propounded, long-term indicators are still near the Fed’s 2% target. 

Another Fed Governor, Adriana Kugler, said on Monday during a panel at Harvard University that she now sees inflation as the more urgent challenge, placing external estimates that peg the current effective tariff rate at over 20%. 

“I view, right now, inflation as being more pressing as far as the effects that we’re already seeing,” she said.

San Francisco Fed President Mary Daly wants the central bank to exercise restraint, telling an audience at Brigham Young University on Tuesday that there’s no immediate need for new action. 

“We cut the interest rate by 100 basis points last year,” Daly said, referring to the Fed’s previous cuts in the latter half of 2024. “That puts policy in a good place to stay modestly restrictive.”

She concluded that the current stance can continue to help lower inflation trends without stalling economic activity. 

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