Fed officials reiterate patient policy stance, cites market uncertainty

On Friday, after this week’s policy meeting,  Fed officials said the current economic uncertainty calls for monetary policy patience. This is because the Trump administration’s trade policy makes the future riskier.

On Wednesday, the U.S. central bank kept its benchmark interest rate at 4.25% to 4.50%. It also said that economic instability was growing.

This is good news considering President Donald Trump’s trade policy, which is a major source of uncertainty for the Fed and the overall economy. 

To attract more manufacturing back to the US, Trump has hit nations worldwide, particularly China, with extremely high tariffs of +145%. Trump has been insisting that the Fed lower the rates. However, just like their first stance, they need more time to see how things unfold.

Fed sees limited economic activity

Fed Chair Jerome Powell said, “Despite heightened uncertainty, the economy is still in a solid position […] we believe that the current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments.”

New York Fed President John Williams told Bloomberg that in the current state of Fed policy, the US is a good place. To avoid guessing where monetary policy would go, he added, “Let’s collect more data, information about what’s happening with trade policy” and how it affects the economy, and then the Fed can decide what its next policy steps should be.

In a separate interview, Fed Governor Adriana Kugler said that the strong economy gives time to do more work in lowering inflation before considering the next step. Williams and Kugler both said that the current interest rate policy is limiting economic activity by a small amount.

On the other hand,  economists think that these taxes on imports will make inflation rise even more than it already is, which is above the Federal Reserve’s goal of 2%. They are also likely to slow down economic growth and make unemployment worse. But it’s not clear how this will all turn out. Trump’s constant changes to tariffs and promises that a lot of trade deals are on the way make things even more confusing.

April’s Consumer Price Index to give the Fed a picture of the effects of tariffs

The possible effects of tariffs on the economy pose big problems for the Federal Open Market Committee, which sets interest rates at the US central bank. Monetary policy is supposed to keep inflation low and the job market strong. This could make it hard for officials to decide which part of their job to focus on the most.

The Fed officials have said that it’s hard to balance both of their duties, but they all think that keeping inflation pressures low is very important.

Rates can help the economy, but cutting them too soon could cause inflation to rise again. Stagflation, which is when there is low growth and high inflation at the same time, is the worst thing that can happen for central bankers because they can’t do anything about it.

Although the officials insist they need time, when the US government releases its Consumer Price Index for April on Tuesday, the Fed may get its first look at how tariffs are hitting prices.

“Tariffs should start to affect the inflation data in April, with clearer evidence likely in May and June,” Bank of America economists said in a research note on Friday. “We expect tariff-driven inflation to be temporary, but our conviction is low as there are good reasons why it could be more persistent than we expect.”

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