The Federal Reserve has yet to cut interest rates in 2025 as it seeks greater clarity on the eventual effects of President Donald Trump’s tariff policy. While Fed Chair Jerome Powell suggested it’s in a “good position” to act decisively if necessary, some economists worry this approach could make the central bank slow to respond to a downturn.
Consumer sentiment has plummeted amid trade policy uncertainty, Federal Reserve Chair Jerome Powell acknowledged Wednesday, and commentary in the central bank’s own “Beige Book” suggests businesses are already feeling the effects of President Donald Trump’s tariffs.
Fed policymakers have not been moved by this “soft data,” however, and have yet to move interest rates this year. After the central bank’s latest decision to keep the Federal funds rate steady between 4.25% and 4.5%, Powell told reporters he and his colleagues are ready to act decisively—but not until the so-called hard data on unemployment and inflation gives them a clear reason to.
“Look at the state of the economy,” he said. “The labor work is solid, inflation is low. We can afford to be patient as things unfold. There’s no real cost to our waiting at this point.”
Other economists, however, note that a “wait and see” approach carries its own risks.
“Central banks that react rather than preempt data tend to be late in changing policy,” said Paul Donovan, chief economist at UBS Global Wealth Management. “Economic data is also increasingly less reliable, making data dependency more dangerous.”
For now, however, Powell thinks key measures of economic conditions have bought the Fed valuable time. The jobs report for April came in stronger than expected last week, with the unemployment rate remaining low, the Fed chair noted, at 4.2%. The central bank’s preferred inflation measure has also come down, though it remains above the Fed’s 2% target.
“It’s still a healthy economy,” Powell said, “albeit one that is shrouded in some very downbeat sentiment on the part of people and businesses.”
Other economists, meanwhile, are warning that signs of a recession are already brewing at the country’s ports amid a dramatic slowdown in shipping, particularly between the U.S. and China. Torsten Sløk, chief economist at private-equity giant Apollo, predicted mass layoffs could hit the industry this month and spur a recession by the summer.
“We see the shipping data, we see all that,” Powell said.
However, he mentioned the possibility of trade talks altering the situation, a day before Trump announced an agreement with the U.K. Meanwhile, Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer will meet with Chinese counterparts this week; Bessent previously said the current standoff between the world’s two biggest economies is not sustainable.
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