Powell on edge, tariffs will soon rage!
There are many unknowns about the economic outlook and interest rates, but Federal Reserve Chairman Jerome Powell has signaled at least one thing that seems certain: Higher prices are coming.
Policymakers voted unanimously to keep interest rates steady for a fourth straight meeting on Wednesday as they await clarity on whether tariffs will leave a one-time or longer-lasting inflationary imprint. Powell said it’s still unclear how much of the bill will be passed on to consumers, but he expects to learn more about tariffs this summer.
“Ultimately the cost of tariffs will have to be paid, and some of it will be passed on to consumers,” Powell said. “We know that’s going to happen, and we just want to see a little bit of that before we make any premature judgments.”
But policymakers’ latest economic projections show a growing split on the committee. While the median forecast in the so-called dot chart continues to show two rate cuts this year, seven officials now see no cuts in 2025. That compares with 10 policymakers who expect two or more.
“They’re unanimous in terms of doing nothing right now, but I think they’re divided in terms of how they view the risks,” said Priya Misra, a portfolio manager at J.P. Morgan Asset Management. “I think the division in the dot chart for 2025 comes down to how different participants view the persistence of inflation.”
Asked about the division in officials’ rate projections, Powell played it down. Given the high level of uncertainty in the economy, he said, “Nobody holds this path of interest rates with much conviction.”
So far, the economy has proven resilient, with inflation rising less than expected in recent months and unemployment holding steady. Uncertainty has eased, officials said in post-meeting remarks, but it remains high. The Fed chief stressed that policy must be forward-looking, adding that officials are starting to see some impact from tariffs but expect more in the coming months.
While forecasters expect a “meaningful” rise in inflation, Powell said the labor market is not “calling for a rate cut.”
“He could be very comfortable with the fact that the inflation readings have been muted,” Misra said, but he added, “they expect that to show up in higher prices later on.”
Fed watchers will get another chance to hear Powell’s thoughts on the economy and its outlook next week when he is scheduled to testify before lawmakers.
Source: Bloomberg
