Why Powell Won’t Cut Rates Until Trump’s Tariff Timeline Expires

TLDR:Fed expected to leave interest rates unchanged at 4.25%-4.50% at May meetingMarkets on pause as they align with Trump’s 90-day “reciprocal” tariff breakPowell likely to emphasize “wait-and-see” approach until tariff situation clarifiesRecent job data showing market resilience gives Fed room to delay rate cutsMarkets pricing only 3% chance of May cut, 31% for June cutAfter Wednesday’s Federal Reserve meeting, interest rates are expected to remain unchanged as Fed officials adopt a cautious stance amid economic uncertainties and President Trump’s tariff pause.Wall Street analysts anticipate that Fed Chair Jerome Powell will emphasize a holding pattern that aligns with Trump’s 90-day tariff break. This synchronization between monetary and trade policy creates a period where both major economic levers are temporarily static.The current target range for interest rates stands at 4.25% to 4.50%, where it has remained since December. Market participants view the chances of a rate cut this week as virtually non-existent, with futures data showing just a 3% probability.2% chance of a rate cut at the FOMC meeting tomorrow...Sooo...you're telling me there's a chance?? pic.twitter.com/wP18G9qmwt— Trader Edge (@Pro_Trader_Edge) May 6, 2025“The Federal Reserve is unlikely to lower rates this week or to act decisively until after July 8, when the 90-day tariff pause ends,” said Emily Bowersock Hill, CEO of Bowersock Capital Partners. This timeline gives officials space to assess emerging economic data.Friday’s job report revealed continued labor market strength, providing the Fed additional justification to maintain current rates. This resilience in employment contradicts some predictions of economic slowdown.Tariff Impact on Fed Decision-MakingThe temporary suspension of Trump’s “Liberation Day” tariffs has granted the Federal Reserve more flexibility in its approach. The 90-day negotiation window announced by the White House has paradoxically given Fed officials additional reasons to avoid rushing into rate cuts.The central bank faces a complex balancing act between potential inflation pressures from tariffs and signs of economic strength. Powell and his colleagues must weigh how potential trade policies might affect pricing across various sectors.“The Committee is mindful that cutting pre-emptively — before there is clarity on the size of the tariffs and their inflationary impact — would convey that the Fed is not committed to its inflation target,” noted Bank of America strategist Mark Cabana in a recent analysis.Some economists worry about more troubling economic scenarios developing. “Consensus expectations for growth have been revised down, and expectations for inflation have been revised up,” wrote Torston Slok, chief economist at Apollo. “This is the definition of stagflation.”Despite Trump’s public calls for lower rates, the Fed has maintained its data-centric approach. Officials appear wary of making policy changes while uncertainty surrounds future tariff implementation and their economic effects.Focus Shifts to Powell’s Press ConferenceWith rates almost certainly staying put, market attention now centers on Powell’s post-meeting press conference. His commentary will be closely scrutinized for hints about future policy direction and the Fed’s economic outlook.“Chairman Powell is all but certain to express a wait-and-see attitude,” said Erik Weisman, chief economist at MFS Investment Management. “The chaos of U.S. tariff policy leaves the future macroeconomic landscape especially challenging to discern.”Reporters will likely press Powell on which risk concerns the Fed more: rising inflation or increasing unemployment. His answers could provide valuable insights into the central bank’s priorities for the coming months.Recent economic data presents a mixed picture. Last week showed a 0.3% contraction in real gross domestic product for the first quarter and weakness in consumer spending. However, the Fed’s preferred inflation measure remained stable month-to-month.The Treasury market has stabilized after earlier volatility, which Powell might cite as evidence of robust market liquidity. This market resilience gives the Fed more room to maintain its patient approach.The June FOMC meeting now stands as the next potential inflection point, with markets currently pricing a 31% chance of a rate cut. But economists doubt Powell will provide clear signals about future moves during this week’s comments.For now, both fiscal and monetary policy appear synchronized in their pause, creating a waiting period for markets. How this dual pause affects the broader economy remains the key question that neither Powell nor market participants can yet answer with certainty.The post Why Powell Won’t Cut Rates Until Trump’s Tariff Timeline Expires appeared first on CoinCentral.