The US Federal Reserve waits out the tariff economy

Some investors warn that cutting rates aggressively without clear economic weakness could backfire

- Nick Timiraos

Federal Reserve Chair Jerome Powell projected confidence when he insisted the central bank was in a good position to handle whatever the economy does next—all while repeatedly acknowledging the Fed has little idea what's actually coming.

The Fed is trying to see how the dust will settle from the aftereffects of President Trump's April 2 "Liberation Day" tariff announcements, among other policy changes. Most economists expect tariffs to lift prices over the coming months, and that is a worry for the Fed because officials still don't feel as if they completely vanquished inflation after a three-year-long fight.

"We haven't been through a situation like this, and I think we have to be humble about our ability to forecast it," Powell said.

Inflation has eased recently, but tariff effects loom. The job market shows hints of softness, though unemployment remains low at 4.2%.

"The data to date can be viewed as glass half-full, or glass half-empty," said Krishna Guha, vice chairman at Evercore ISI.

Powell offered nothing to hint at a July rate reduction, and investors eyed September as the earliest possible resumption of rate cuts paused earlier this year. With most relevant data still to come, it made little sense for the Fed chair to commit to a specific course of action, Guha said.

The timing for rate cuts "could come quickly. It could not come quickly," Powell said. "We feel like we're going to learn a great deal more over the summer on tariffs."