Fed on Hold Until Trump’s Policy Landscape Clarifies

Federal Reserve Chairman Jerome Powell stated on Friday (07.03.2025) that the central bank may wait to see how President Trump’s aggressive policy actions evolve before moving again on interest rates. With markets on edge due to Trump’s proposals on tariffs and other issues, Powell reiterated recent statements advising patience in monetary policy amid high uncertainty. The White House “is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulations,” Powell said at the U.S. Monetary Policy Forum, according to CNBC. “It is the net effect of these policy changes that will matter for the economy and the path of monetary policy.” Noting that “uncertainty around these changes and their likely outcomes remains high,” Powell said the Fed “is focused on separating the signal from the noise as prospects evolve. We don’t need to rush and are in a position to await greater clarity.” Powell’s comments partly contrast with growing market expectations for rate cuts this year. As markets have been unsettled by Trump’s shifting agenda, particularly his tariff plans, investors have priced in the equivalent of a 0.75% rate cut by year-end, starting in June, according to CME Group’s FedWatch tool. However, Powell’s remarks suggest the Fed will remain in a waiting stance before planning further policy easing. “Policy is not on a preset course,” he said. “Our current policy stance is well positioned to address the risks and uncertainties we face as we pursue both sides of our dual mandate.” In his assessment, Powell spoke largely positively about the macroeconomic environment, stating that the U.S. is at a “good place” with a “solid labor market” and inflation moving back toward its target. However, he noted that recent surveys showed concerns about inflation trends, largely due to the tariff discussions. The Fed’s preferred indicator shows inflation at a 12-month rate of 2.5% to 2.6% when excluding food and energy. “The path toward the sustainable return of inflation to our target has been uneven, and we expect it to continue,” Powell said.