Timiraos argues that the chaotic implementation of President Trump’s tariff policy is creating a difficult dilemma for the Federal Reserve:
either risk a recession or grapple with stagflation.This policy bind will be a central focus at the Fed’s upcoming two-day meeting, where officials are expected to maintain their cautious stance on interest rate cuts.
Fed Chair Jerome Powell and his colleagues are set to reiterate their wait-and-see approach, underscoring their reluctance to ease policy too soon and risk undermining progress on inflation. As Powell put it last month, “We’ll make what will no doubt be a very difficult judgment.” The situation has been likened to a goalkeeper’s dilemma—either stand firm to contain inflation or move quickly to support a weakening economy. But the Fed remains wary of acting pre-emptively, especially with tariffs threatening to raise short-term inflation through supply disruptions. “This is not going to be a cycle where the Fed pre-emptively cuts because there’s a forecast of a slowdown,” said former Fed Vice Chair Richard Clarida, now at Pimco. “They’re going to actually need to see it in the tangible data, in particular the labor market.”***
The FOMC statement is due at 1800 GMT on Wednesday, May 7, 2025 91400 US Eastern time)
Federal Reserve Chair Powell speaks a half hour later This article was written by Eamonn Sheridan at www.forexlive.com. Read More Details
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