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Economists have shifted back their forecasts for lower borrowing costs as President Trump’s tariffs raised the risk of higher inflation and slower growth.
May 8, 2025Updated 1:11 p.m. ET
More than 20 times during a roughly 45 minute news conference on Wednesday, Jerome H. Powell, the chair of the Federal Reserve, referenced the idea of waiting to see how President Trump’s policies would ripple through the economy before taking any action on interest rates.
Mr. Powell, who spoke after the Fed opted to extend a pause on interest rate cuts, said the central bank had the flexibility to do so because the economy overall was still on solid footing. He also stressed that it was the most prudent decision at a time when there was so much uncertainty about how much tariffs would raise inflation and slow growth.
“It’s really not at all clear what it is we should do,” he told reporters.
Forecasts for when the Fed will restart interest rate cuts have been in a constant state of flux, whipsawing on every twist and turn in the global trade war or on any new data point that sheds a sliver more light on the state of the economy. But what is starting to set in is that the Fed may in fact be on hold for quite a bit longer than initially expected — and far longer than Mr. Trump would like. The president on Thursday again pressed Mr. Powell to lower interest rates, calling him a “fool.”
Economists are increasingly coalescing around September as the most plausible time for the Fed to restart interest rate cuts. Some have penciled in an even later start date. The longer the Fed waits, the higher the odds that officials may have to lower borrowing costs more aggressively to shore up the economy.
“The likelihood of them moving doesn’t really start to increase until you get to the September meeting,” said Tiffany Wilding, an economist at asset manager Pimco. She said a larger-than-usual half-point cut would be firmly on the table at that point and that she expects the Fed to keep lowering rates into the next year.
“I don’t think that using the playbook of 25 basis point increments per meeting for cuts is the right one to use here,” Ms. Wilding said, pointing to the possibility that the economy could weaken abruptly.
