Federal Reserve Chair Jerome Powell used the word "uncertainty" 16 times in his press conference today. We sympathize. At the outset, it's impossible to know what tariffs will be imposed by the US on April 2., on which countries, and for how long. When the specifics are revealed, it will still be difficult to forecast their impact on economic growth and inflation in the US and around the world. Another known unknown is the response of America's trading partners to reciprocal tariffs. Will they lead to negotiated reciprocal reductions in tariffs or to escalating retaliatory tariffs?
No wonder that the FOMC unanimously decided to leave the federal funds rate (FFR) unchanged at 4.25%-4.50%. Committee officials did revise their economic forecasts, however. They lowered their economic growth projections and raised their near-term unemployment and inflation expectations. The median projection of FOMC members was still two 25bps rate cuts this year, just as the futures market projects (chart). That's probably because tariffs are expected to lead to a one-time price increase while they (along with limited immigration) weigh on the growth outlook.
