Large waves of trade and tariff volatility have reset much of the calculus that has gone into estimates of when the Federal Reserve might again start cutting the short-term benchmark federal funds rate. That leaves the question of when interest rate cuts might start again.
Could there be a summer reset in June? July? Could pressure from President Trump move the Fed? Not according to economists and forecasters who are looking more toward September, or even later.
The Fed faces a challenge due to its dual mandate of maintaining stable prices and achieving maximum sustainable employment. Given the limited tools the central bank has to set and direct monetary policy, the two mandates can sometimes pull in opposite directions.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Fed Chair Jerome Powell said last Wednesday after the Federal Open Market Committee meeting. If there were a choice between maintaining either stable prices or maximum employment, the central bank would compare the distance the economy was from each goal and how much time reaching each would need. Ordinarily, the Fed would answer rising inflation with higher interest rates to slow demand, but increased unemployment with lower rates to stimulate business and increase the need for workers.
“For the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said.
The uncertainty of tariffs, mentioned two dozen times after last Wednesday by Powell and multiple reporters questioning him after the FOMC meeting, as well as congressional budgetary choices and the potential for large tax cuts, make it difficult to plan ahead. The Fed cannot know in which direction its dual-mandate balance might go.
“In their view, they can’t really make policy on the basis of a forecast,” Dean Maki, chief economist for hedge fund Point72, told The New York Times. “Right now, there is just too much uncertainty about where policy is going to go, about how that policy is going to ripple through the economy, and about what the timing of that is.”
Maki has continued to forecast a July cut but could see that stalled until September. He is on the more optimistic end.
Meanwhile, Tiffany Wilding, an economist at asset manager PIMCO, told The Times, “The likelihood of them moving doesn’t really start to increase until you get to the September meeting.” She thinks a 50-basis-point cut might be possible.
Oxford Economics is on the more pessimistic end. “The Fed is unlikely to cut interest rates earlier than our forecast of December, unless there are definitive signs that the labor market is deteriorating,” it wrote last Wednesday.
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