What to Expect from the Fed: Powell Signals Patience as Rate Path Divides
Federal Reserve Chair Jerome Powell offered a cautious tone during his latest post-meeting remarks, emphasizing that the central bank remains in wait-and-see mode amid elevated uncertainties around inflation, tariffs, and labor market dynamics.
Despite market anticipation, the Fed left interest rates unchanged for the fourth consecutive meeting.
The updated dot plot continues to show a median expectation of two rate cuts in 2024—amounting to a 50 basis point reduction. However, the projections are far from unified. Nearly as many FOMC participants foresee no cuts at all this year. Bloomberg Economics noted that if just one participant predicting two cuts had shifted to only one, the median would have reflected a single cut instead. This division underscores the Fed’s deep uncertainty about the outlook.
Looking ahead, the median rate projection stands at 3.9% for 2025. Projections for 2026 and 2027 rose modestly, indicating a more gradual and shallower path of easing than anticipated in March.
Tariffs, Inflation, and Labor Shape Outlook
Powell pointed out that the current environment is unlike anything the Fed has previously faced. “We haven’t been through a situation like this,” he said, referring to the potential impact of large-scale tariffs on inflation. Echoing a recent statement by Congressional Budget Office Director Phil Swagel, Powell warned that there’s limited historical data to forecast how tariff increases will affect prices and economic behavior.
He also highlighted the challenge in determining who ultimately bears the burden of tariffs—producers, importers, or consumers. Powell noted that the Fed expects to gain more clarity over the summer as the effects of these policies become clearer.
While some aspects of the labor market are cooling “very, very slowly,” Powell said the overall picture remains strong. Inflation projections, however, have been revised higher for both 2024 and 2025, as has the forecast for unemployment.
Dollar and Treasury Markets Flat Post-Fed
Market reactions to the Fed’s decision and Powell’s remarks were muted. The Bloomberg Dollar Spot Index, which initially fell ahead of the meeting and the FOMC statement, recovered losses and ended flat on the day. Ten-year Treasury yields also retraced earlier gains to close unchanged, as traders interpreted Powell’s message as a signal of policy stability in the near term.
Political Criticism and Powell’s Future
Responding to political attacks—including pointed criticism from President Trump—Powell maintained his focus on economic fundamentals. “It’s not complicated,” he said. “We all want a strong U.S. economy. That is pretty much all that matters to us.”
Powell’s current term as Fed chair ends in May, but he remains a board member until early 2028. When asked whether he would stay beyond his term as chair, Powell said he’s not currently thinking about that decision.
Conclusion: Uncertainty Remains Central Theme
The Fed remains cautious amid evolving risks. Rate policy will likely hinge on incoming data, particularly around inflation and the real impact of tariffs. With markets split between zero and two rate cuts for 2024 and a shallow easing path projected for later years, investors should prepare for a highly reactive and data-dependent central bank.
Kosta Gushterov
Reporter at Coindoo
Kosta joined the team in 2021 and quickly established himself with his thirst for knowledge, incredible dedication, and analytical thinking. He not only covers a wide range of current topics, but also writes excellent reviews, PR articles, and educational materials. His articles are also quoted by other news agencies.
