Page 6 - Spring 2025

Tariff uncertainty could push back

Fed rate moves to late 2025

BY BRIAN SHEID

indica�ng that clarity could s�ll be
Uncertainty about the timing and impact of US
months away.
President Donald Trump's tariffs led Federal Reserve officials to hold
interest rates steady for a poten�ally longer-than-expected period.
Sco� Anderson, chief US economist
The Fed's rate-se�ng Federal Open Market Commi�ee voted May 7 to
and managing director at BMO Capital
maintain the central bank's benchmark rate within its current target of
Markets, said the Fed's "wait and see"
4.25% to 4.5%, where it has been since the Fed last cut rates by 25 basis
approach is likely the best op�on due
points in December 2024.
to the increased uncertainty
surrounding future infla�on and the labor market.
Previously, Fed officials an�cipated rate cuts throughout the year. But
Trump's plan to impose tariffs on nearly all US trading partners has altered
"Move too early in the wrong direc�on on rates and you create a serious
that outlook. The Fed is unlikely to adjust rates un�l the economic effects
monetary policy error that could put the financial markets into a tailspin,"
of the tariffs become evident in data, par�cularly concerning infla�on and
Anderson said.
the domes�c job market.
"It's really appropriate, we think, for us to be pa�ent and wait for things to
unfold as we get more clarity about what we should do," Fed Chairman
Jerome Powell said during a press conference following the
announcement that the Fed would keep rates unchanged.

Following Powell's press conference, about 73% of the futures market
predicted the Fed would cut rates by at least 0.25 percentage point by
July, according to CME FedWatch. A month prior, nearly 100% of the
market an�cipated at least one cut by July.
Powell said the US economy's rela�ve health allows for pa�ence on Now, almost all the market expects at least one cut by September. But
rates. The unemployment rate has hovered around 4% over the past year Powell said the Fed's next move will likely depend on how tariffs affect
and infla�on has moderated, showing progress toward the Fed's 2% infla�on, economic growth and unemployment.
target.

"The Fed is acknowledging that uncertainty has increased with more
However, Trump's tariffs are the key unknown factor, Powell said. The upside risk for both infla�on and unemployment," said James
Fed's future ac�ons and �ming depend almost en�rely on the tariffs' Knightley, chief interna�onal economist at ING. "This suggests li�le
scale, scope, �ming and dura�on.
inclina�on to move un�l they are confident of the direc�on the data is
heading, meaning rate cuts could be delayed but risk being sharper
"The right thing to do is to await further clarity," Powell said.
when they come."
Wait and see Powell did not exclude the possibility that the first rate move a�er the
Given the �ming of Fed mee�ngs, government data releases and a 90-
day pause on reciprocal tariffs expected to last un�l early July, the full tariffs could be an increase if infla�on rises significantly. Core personal
impact of tariffs on infla�on and jobs may not appear in data un�l the
fall, Con�nued on
Arkansas Community Banker | 6 | Spring 2025 Page 18