Steering Through Uncertainty: Jerome Powell’s Fed in the Shadow of Tariffs and Trump

IndraStra Business News Desk

Cover Image Attribute: The file photo of Jerome Powell / Source: Al Drago/Bloomberg

The United States finds itself at a precarious economic crossroads, where the interplay of inflation, trade policy, and political pressure shapes the Federal Reserve’s delicate balancing act. As the Jerome Powell-led Federal Open Market Committee (FOMC) convenes on May 6 and 7, 2025, the decision to maintain benchmark interest rates between 4.25% and 4.5% reflects a cautious response to a resilient yet uncertain economy. This choice, expected by many at the central bank, underscores a broader tension: the Fed’s commitment to price stability amidst President Donald Trump’s relentless calls for rate cuts and the disruptive ripple effects of his tariff policies. Powell’s defiance of Trump’s demands, coupled with the Fed’s data-driven approach, reveals a central bank striving to preserve its independence while navigating a landscape fraught with inflationary risks and recessionary fears. The stakes are high, and the Fed’s actions—or inaction—will reverberate across global markets and domestic livelihoods.
The backdrop to the FOMC’s meeting is a U.S. economy that, for now, shows resilience. Government data released on May 2, 2025, reported a robust 177,000 jump in April payrolls, a figure Trump seized upon to argue for immediate rate cuts. In a social media post on Truth Social, he declared, “NO INFLATION, THE FED SHOULD LOWER ITS RATE!!!” citing falling prices for gas and eggs and claiming “billions of dollars” flowing into the economy due to his tariffs. The labor market’s strength gives Powell room to resist these demands, as a solid job market reduces the urgency for monetary easing. Yet, this resilience is tempered by mounting concerns about an economic slowdown. Initial jobless claims for the week ending April 26 surged to their highest since February, driven partly by a spring recess-related spike in New York, signaling potential cracks in the labor market. Economists are now eyeing upcoming data, such as the Institute for Supply Management’s April services index and weekly jobless claims, for signs of deepening layoffs or economic strain.
Inflation, the Fed’s primary focus, remains a persistent challenge. The Fed’s preferred gauge, the core PCE deflator, indicates price pressures are easing slowly, but inflation continues to hover above the 2% target. Richmond Fed President Thomas Barkin and Fed Governor Adriana Kugler have expressed concerns that inflation expectations may be loosening, a worry echoed by Bloomberg Economics: “We expect Powell to push back against market pricing and signal a renewed priority on price stability.” Trump’s tariffs, dubbed the “Liberation Day” tariffs, complicate this picture. Higher duties on imports threaten to reverse progress on inflation by driving up consumer prices, creating a stagflationary risk—slow growth paired with sticky inflation above 3%, as noted by Bloomberg Intelligence strategist Ira Jersey. The uncertainty surrounding these tariffs, with the White House pursuing deals that could reshape the trade landscape, makes forecasting economic conditions a daunting task. The Bank of Canada’s decision to abandon its base-case forecast in April, opting instead for two divergent scenarios based on U.S. tariff outcomes, illustrates this global fog of uncertainty.
Powell’s steadfastness in the face of Trump’s pressure is not merely a policy stance but a defense of the Fed’s independence. Trump’s rhetoric has been unrelenting, labeling Powell “a total stiff” and “a major loser” in public forums, including an NBC Meet the Press interview aired on May 4, 2025. He has accused Powell of letting personal antipathy influence monetary policy, claiming, “He’d rather not [lower rates] because he’s not a fan of mine.” These attacks have rattled markets, with stocks tumbling last month after Trump escalated his criticisms, raising fears about the Fed’s autonomy. In mid-April, Trump’s social media post demanding “Powell’s termination cannot come fast enough!” and Oval Office remarks that “if I want him out, he’ll be out of there real fast, believe me” fueled speculation about Powell’s job security. Yet, Trump has since clarified he will not fire Powell before his term ends in May 2026, stating, “No, no, no. That was a total — why would I do that? I get to replace the person in another short period of time.” This retreat, reportedly urged by Treasury Secretary Scott Bessent to avoid market instability, suggests a pragmatic limit to Trump’s bluster, but the tension persists.
The bond market’s reaction to recent data underscores the Fed’s cautious approach. After the strong April jobs report and a less-dismal-than-expected manufacturing report, bond traders reversed earlier bets on imminent rate cuts. Two-year Treasury yields surged in their biggest two-day jump since October, and futures traders now expect the Fed to hold rates steady until at least July or September, aligning with forecasts from Goldman Sachs and Barclays. Priya Misra, a portfolio manager at JPMorgan Asset Management, noted, “With inflation being above the Fed’s target, tariffs which can move prices higher and a still solid labor market, I think the Fed is unlikely to do anything.” This shift reflects the Fed’s data-dependent stance, as emphasized by Powell and his colleagues, who remain wary of tariff-induced price hikes reigniting inflation. Ed Al-Hussainy, a rates strategist at Columbia Threadneedle, observed, “Data right now is fine, and the Fed likes to move slowly,” highlighting the central bank’s reluctance to act prematurely.
Globally, central banks are grappling with similar uncertainties, their policies shaped by the fallout of Trump’s trade war. The European Central Bank (ECB) has cut rates, anticipating disinflation and weaker growth due to U.S. tariffs, but euro-area inflation unexpectedly held steady in April, with an underlying measure rising. The Bank of England is poised to ease borrowing costs on May 8, despite inflation above 2%, as it accounts for Trump’s tariff onslaught. In Poland, a rate cut is expected on May 7, while Brazil’s central bank is likely to raise rates to 14.75% to combat elevated inflation expectations. These divergent responses reflect the uneven impact of U.S. tariffs, with countries like Norway, with minimal direct U.S. trade exposure, worrying about global knock-on effects. At the Reykjavík Economic Conference later this week, central bankers, including the Bank of England’s Andrew Bailey, will discuss these challenges, while the ECB’s strategy review in Porto, Portugal, will address the broader implications of trade disruptions.
The Fed’s focus extends beyond immediate rate decisions to the longer-term risks posed by Trump’s policies. Powell has emphasized the need to prevent tariff-driven price hikes from becoming entrenched, a lesson drawn from the post-pandemic inflation surge that caught policymakers off guard. Yet, the Fed remains prepared to intervene if the economy deteriorates significantly. Bond investors, as Subadra Rajappa of Societe Generale noted, are concerned about the economy’s trajectory and expect the Fed to hold steady but cut aggressively if conditions worsen. Futures markets are pricing in three quarter-point cuts by year’s end, exceeding the Fed’s March projection of two, reflecting darker expectations since Trump’s April 2 tariff rollout. The S&P 500’s rebound to pre-tariff levels suggests some market resilience, but consumer confidence and business supply chains remain vulnerable to further disruptions.
For American households and businesses, the Fed’s decisions carry profound implications. A potential recession, hinted at by Canada’s financial stability report and Asia’s worsening economic indicators, could strain U.S. consumers and firms already navigating tariff-driven price increases. Data from China, Japan, and Vietnam, due this week, will provide early insights into the tariffs’ global impact, while U.S. trade balance and consumer credit figures will shed light on domestic pressures. Trump’s claim of a “TRANSITION STAGE” for the economy, bolstered by tariff revenues, contrasts with the Fed’s data-driven caution, highlighting a fundamental disconnect. The Fed’s commentary on May 7, particularly Powell’s remarks on tariffs and inflation, will be closely scrutinized for clues about future policy.
Powell’s leadership is a study in restraint and resilience. His refusal to bow to Trump’s demands, despite personal attacks, underscores the Fed’s institutional commitment to its dual mandate of price stability and maximum employment. The labor market’s strength and easing inflation provide a foundation for this stance, but the tariff war’s unpredictability and global economic headwinds demand vigilance. As central banks worldwide adapt to this new reality—some cutting rates, others holding or hiking—the Fed’s steady hand offers a measure of stability. Yet, the path forward is fraught with risks, from inflationary spikes to recessionary pressures, and Powell’s ability to navigate this tightrope will shape the economic landscape for years to come. The May 7 decision to hold rates steady is not just a policy choice but a statement of independence, signaling that the Fed will chart its course based on data, not political pressure, in an era defined by uncertainty.
With reporting by Bloomberg, and Reuters

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