Howard Schneider
6 min read
By Howard Schneider
WASHINGTON (Reuters) -President Donald Trump's inauguration promise in January that "the golden age of America begins right now" remains unfulfilled in the outlook of Federal Reserve officials who so far see his policies slowing the economy, raising unemployment and inflation, and clouding the horizon with a still-unresolved tariff debate that could deliver a fresh shock in coming weeks.
The U.S. central bank's response has been to put planned interest rate cuts on hold until perhaps the fall while the debates over tariffs and other administration priorities unfold, and to project a slower eventual pace of rate cuts to a higher stopping point. Effectively it embeds steeper borrowing costs into Fed policymakers' outlook to insure against inflation they now see as higher in coming months than they did before Trump took office for a second time.
That isn't welcome news for Trump, who has called Fed Chair Jerome Powell "stupid" for not slashing rates immediately. It is no more welcome for U.S. consumers and homebuyers hoping for lower financing costs. And it puts the Fed somewhat out of step with other central banks that continue to lower rates.
But it does highlight how much Trump's early policy moves, particularly on tariffs, have reshaped the short-term outlook for the world's largest economy, which at the end of last year was seen on track for continued above-trend growth, full employment and inflation steadily falling to the Fed's 2% target. The steady series of rate cuts policymakers anticipated just six months ago has been replaced with a more tentative path as they wait for Trump's final decisions on tariffs and watch how the job market, consumer spending and inflation evolve.
"We feel like we're going to learn a great deal more over the summer on tariffs," Powell told reporters on Wednesday after the Fed held its benchmark overnight rate in the 4.25%-4.50% range for the fourth straight meeting, and issued new projections showing inflation rising substantially by the end of this year and coming down slowly after that point.
Trump has latched on to recent weak inflation readings to argue for rate cuts, reiterating on Thursday that the Fed should slash its benchmark rate nearly in half and noting earlier in the week that the European Central Bank and others had kept easing monetary policy.
But, referring to the impact of the tariffs imposed so far, Powell said "we hadn't expected them to show up much by now, and they haven't ... We will see the extent to which they do over coming months ... That's going to inform our thinking."