The Fed Is Waiting Out the Tariff Economy

The Wall Street Journal highlights a significant pivot by the Federal Reserve: choosing to hold interest rates steady as it assesses the impact of President Trump’s "Liberation Day" tariff surge on April 2. At their mid‑June meeting, Fed Chair Jerome Powell emphasized that while inflation has eased and unemployment remains at a solid 4.2%, the full consequences of tariffs are still unknown. That uncertainty forced the Fed into a “wait-and-see” stance, with no rate cuts likely before September, and even then only if incoming data justifies it.

Inside the Fed, policymakers are split. Out of 19 members, 10 forecast two rate cuts this year while 7 now expect none—a clear shift since March, reflecting growing caution. Powell reiterated that the bank must be humble in predicting outcomes, admitting they simply “don’t know” how deeply tariffs will affect prices and output. Reuters reinforces this, noting that it's still too early to pinpoint how tariffs are influencing inflation, though initial signs show some pass-through in goods prices like appliances and electronics.

Much pressure is coming from President Trump, who’s criticized Powell for maintaining rates at 4.25–4.5% and demanded dramatic cuts as steep as 2 percentage points—while calling him “stupid”. Still, Powell continues to defend the Fed’s independence and resists political pressure. He highlights the danger of premature cuts, warning they could antagonize long-term rates or reignite inflation unexpectedly.

My Take

Powell is showing strategic restraint—essentially flying blind without a full economic review. In volatile times like this, data-driven patience beats the political itch to act. The Fed knows tariffs can push inflation and simultaneously dampen growth, creating a challenging "stagflation" risk . Their top priority: avoid making a mistake that forces even more painful measures later.

Still, I'm skeptical about how long this posture can last. Consumers are already feeling the pinch—Business Insider highlights cases of sudden $250 import fees slapped onto luxury purchases due to carrier pass-through. That pain point could build political pressure fast. If tariffs’ effects accelerate through essential goods, the Fed may be forced to act sooner—maybe even before September.

Bottom Line

The Fed's decision to pause is a calculated response to unprecedented uncertainty. While critics and the president clamor for rate cuts, Powell is holding firm until the data tells a clearer story. But if “tariff inflation” arrives faster and harder than anticipated—and households begin to buckle—the Fed may need to pivot unexpectedly. For now, it's a tense watch-and-wait, with little indication that the central banker’s hand will shift before autumn.