Jerome Powell’s determination to ensure a surge in prices due to Donald Trump’s tariffs has not spread across the economy, which has given him “Mr. Two Late” from the president. For the Federal Reserve Chair, that’s better than Mr. Miss.
Just a few months ago, Powell was piloting the economy with his colleagues towards what is called soft landing. Trump’s drastic tariffs have improved the outlook and raise expectations for weaker economic growth this year and higher inflation.
This has urged Fed officials to shift to strategies that could be described as attempting slow rescues for the economy. It’s stable long enough to curb inflation, but is ready to lower them to ensure the labor market doesn’t crash.
“They prefer to be slower than they’re wrong,” said Aditya Bhave, a US economist with Bofa Securities. “They’re going to wait and see how things unfold on both orders.”
Fed officials are expected to not change prices the next time they meet for the two-day policy meeting in Washington, May 6-7.
Powell and his colleagues have in recent weeksI warnedThe inflationary impact of the president’s import obligations could be more sustained than expected, and the Fed’s job is to ensure that price picking is limited. It means maintaining a strict stance on interest rates and managing and holding price expectationsStable ratesThere has not been a significant increase in unemployment.
“Our duty is to fully secure long-term inflation expectations and ensure that one-time price levels rise does not become an ongoing inflation issue,” Powell told Chicago’s economic club on April 16.
Those comments prompted quick criticism from the White House along with TrumppromptPowell is now cutting interest rates to avoid slowing the economy.
Waiting is risky. Once unemployment rates begin to rise, it usually moves rapidly and the economy falls into a recession. However, lowering interest rates early could create price pressure again. This is something patients don’t want to do after a surge in inflation following the pandemic.
Some Fed Watchers can pull off late rescues when it could be the ultimate test of Powell’s policy leadership, economic insights and timing.
“This is a new test for him,” said Claudia Sahm, Chief Economist for New Century Advisor. “You’re getting both sides of the delegation to orbit in the way they have to make their choices.”
Personal mission
Ensuring a soft landing has become a personal mission for Powell after the post-pandemic inflation exploded. He called the Fed’s rate hiking cycle peak in December 2023, cooling the expansion but not crashing. Inflation at the time was below percentage points above the Fed’s 2% target, from a four-year high of 7.2% in 2022.
When it’s time to lower the rates in September, PowellPersuadedHis colleagues on the Federal Open Market Committee joined him with aggressive half-cuts to keep the labor market strong. They ended up cutting rates at three meetings before they held this year as inflation appears to have settled beyond their targets.
Trump had reclaimed the White House by then, and at the Fed’s March meeting it was clear that tariff threats would continue to cause prices to rise. signal Expectations for higher inflation and slower growth.
Trump’s tariff plans arrived at a sensitive period, with five previous measurements surprisingly hot. The Fed’s priority gauge for underlying inflation was 2.8% in February. Economists expected it to ease to 2.6% in March.
“They didn’t revive price stability,” said Lindsey Piegza, chief economist at Stifel Financial Corp.
These fears extend beyond Fed Watchers. Consumer inflation expectations It has risen sharply In April, an economist surveyed by Bloomberg this month claims that the trade war could hold a potential US recession, according to a report from the University of Michigan on Friday. Coin Flip.
The recession will undoubtedly spark even greater hostility from the White House. I already have Trumphinted at firingPowell, thenI’ve retreatedFrom the threat that shook the financial markets.
However, a central bank that has failed again to control inflation after four years of exceeding its target, could in fact be unreliable.
“We’re looking forward to seeing you in the future,” said Diane Swong, Chief Economist at KPMG. “The biggest mistake the Fed could make is to instill additional inflation as the economy weakens.”
This story was originally featured on Fortune.com.
