Powell rules out preemptive cuts as tariffs cloud economic outlook
The U.S. Federal Reserve held interest rates steady at 4.25% to 4.5% at its May policy meeting, citing continued economic expansion but acknowledging a growing risk on both sides of its dual mandate: inflation and unemployment.
“Recent indicators suggest that economic activity has continued to expand at a solid pace,” the Federal Open Market Committee (FOMC) said in its official statement. However, it warned that “the risks of higher unemployment and higher inflation have risen,” a notable addition that sent markets lower after the release.
Fed Chair Jerome Powell reinforced the committee’s wait-and-see stance, cautioning against a preemptive rate cut in response to economic headwinds such as the Trump administration’s new tariffs. “It’s not a situation where we can be preemptive, because we actually don’t know what the right responses to the data will be until we see more data,” Powell said in a post-meeting press conference.
Trade tensions and rising uncertainty
The Fed’s policy pause comes amid elevated uncertainty over U.S. trade policy. President Trump’s unexpectedly steep tariffs, announced on April 2, caught the Fed off guard. Powell confirmed they were “substantially larger than anticipated” and could delay the central bank’s progress toward its goals of stable prices and maximum employment.
“If the tariffs are ultimately put in place at those levels, which we don’t know, then we might see a delay” in meeting those goals, Powell said. He added that current policy is “moderately restrictive” and leaves the Fed “in a good place to wait and see.”
U.S. officials, including Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer, are expected to meet Chinese counterparts in Switzerland this weekend. Powell noted that how these talks unfold could “change the picture materially—or not.”
No rate cuts despite political pressure
Despite vocal calls from President Trump to cut rates, Powell dismissed the idea that political pressure affects the Fed’s decision-making. “We are always going to consider only the economic data, the outlook, the balance of risks — and that’s it,” he said.
Asked whether he had sought a meeting with Trump, Powell replied, “I’ve never asked for a meeting with any president, and I never will.”
The Fed also declined to offer guidance on fiscal matters, with Powell stating that lawmakers “don’t need my advice” on how to manage the federal budget, even as he acknowledged that U.S. debt is on “an unsustainable path.”
Consumer impact and market reaction
The decision to hold rates steady means borrowing costs will remain elevated in the near term. Credit card APRs remain above 20%, and auto loans are averaging over 7% for five-year terms. While mortgage rates have eased slightly due to Treasury yield movements, high savings account yields persist, offering some benefit to depositors.
The Fed’s cautious stance is likely to continue, with Goldman Sachs Asset Management suggesting another “hold” is probable at the next meeting. “The onus is on the labor market to weaken sufficiently to bring a resumption of its easing cycle,” said Ashish Shah, the firm’s CIO of public investing.
JPMorgan strategist David Kelly saw the Fed’s language as a veiled message to the White House: “Your policies are leading to higher inflation, higher unemployment,” he said.
For now, Powell insists the central bank is well-positioned. “There’s just so much that we don’t know,” he said. “We don’t have to be in a hurry.”
