Fed's Powell: Near-term inflation expectations have moved up, tariffs are a driving factor. Most measures of longer-term inflation are consistent with the goal.

Fed's Powell: Near-term inflation expectations have moved up, tariffs are a driving factor. Most measures of longer-term inflation are consistent with the goal.

The Federal Reserve is set to announce its latest decision on interest rates at 2 p.m. ET today, June 17, 2025. Despite near-term inflation expectations moving up, the central bank is expected to keep interest rates flat for the fourth consecutive time this year. This decision reflects the Fed's cautious approach to tariff-related economic uncertainty.

Federal Reserve Chair Jerome Powell has indicated that tariffs are a significant driving factor behind the recent rise in inflation expectations. While most measures of longer-term inflation remain consistent with the Fed's 2% target, the central bank is monitoring the situation closely. Powell has emphasized the need to wait for clarity on the economic fallout from President Donald Trump's tariff policies before making any further rate adjustments.

The Fed's decision to hold rates steady is in line with its wait-and-see approach, which has been adopted since January. This strategy allows the central bank to assess the impact of Trump's tariffs on the economy before considering further rate cuts. The tariffs have created an unusual dilemma for the Fed, as they both raise prices and hamper economic growth, posing a risk to both inflation and employment.

Economists have noted that the Fed's cautious stance is driven by the uncertainty surrounding the tariffs' impact on the economy. Without this uncertainty, the Fed would likely be in a position to make cuts given the relatively solid labor market and continued moderation in inflation. However, the Fed finds itself in a bind, waiting to see whether tariffs pose a greater risk to employment or inflation.

The Fed's decision to keep rates unchanged comes amidst a backdrop of global economic uncertainty. While other central banks, such as the European Central Bank and the Bank of England, have been cutting rates, the Fed has remained steadfast in its wait-and-see approach. This divergence in monetary policy reflects the unique challenges posed by the tariff uncertainty.

Investors and financial professionals should pay close attention to Powell's remarks following the Fed's announcement today. Powell's insights into the central bank's thinking on tariff uncertainty and the conflict in the Middle East will provide valuable context for the Fed's future rate decisions.

References:
[1] https://www.cnn.com/business/live-news/federal-reserve-interest-rate-06-18-25
[2] https://finance.yahoo.com/news/fed-cut-interest-rates-trump-122323099.html