The president of the Federal Reserve, Jerome Powell, stepped on the podium in August with a sunny forecast that challenged the snowy mountains registered in curtains behind him.
The Central Bank planned to start reducing rates, Powell announced, reversing a battle of years against the inflation of the pandemic era. “The time has come,” Powell told the audience at a conference at Jackson Hole, Wyoming, promoting a constant cooling of price increases.
Months later, economic uncertainty looks out, which complicates the Fed approach while cloudying inflation and interest rates, some experts told ABC News.
President Donald Trump’s tariffs have discarded markets, fueled recession concerns and increases inflation concerns. In a short time, Trump has stopped or reversed some tariffs, throwing doubts about their plans and increasing uncertainty, experts added.
Policy formulators, business leaders and daily borrowers will direct their attention to the Fed on Wednesday for their last interest rate decision, the first movement of this type since days after Trump assumed the position.
“The Fed is in a difficult position,” News Wendy Edelberg, director of the Hamilton Project and the main member of Economic Studies at the Left Brookings institution, told ABC.
“We have all the possible negative effects of tariffs, but we also have extraordinary uncertainty,” Edelberg added.
The Trump administration at the beginning of this month supplied 25% tariffs in the goods of Mexico and Canada, although the White House soon imposed a one -month delay for some rates. A new round of duties over Chinese products doubled an initial set of rates placed in China a month earlier.
The tariffs imposed on steel and aluminum last week caused Canada’s retaliation rates and the European Union, which adds to countermeasures already initiated by China.
According to some key measures, the economy remains solid. A recent job report showed a solid hiring last month and an historically low unemployment rate. Inflation is well below a peak reached in 2022, although price increases are recorded almost a percentage point higher than the 2%Fed objective.
However, experts said, tariffs can threaten both parts of the Fed mission: control inflation and maximize employment.
Economists widely expect tariffs to increase inflation, since exporters usually transmit a part of consumer tax in the form of price increases.
The president of the Federal Reserve, Jerome Powell, speaks during the annual monetary policy forum of the United States, in New York, on March 7, 2025.
Richard Drew/AP, file
Consumers expect the inflation rate to increase from 2.8% to 4.9% during the next year, according to the results of the Michigan University Survey published last week. The measure marked a significant leap in the inflation expectations of the year more of the year compared to the findings in February.
“There will be an impact on the price,” Yeva Nersisyan, Economics professor at Franklin & Marshall College, told ABC News.
Tariffs could also threaten economic growth and employment, since tariffs slapped in imports of supplies costs that increase the risk of national companies that depend on the raw materials abroad, some experts told ABC News. Repurposition rates can rise to export businesses, since taxes make the products made in the United States less competitive in foreign markets, they added.
Goldman Sachs earlier this month raised his probabilities of a recession during the next year from 15% to 20%. Moody’s Analytics linked the possibilities of a 35%recession.
“There is a risk that the economy transferred and falls into a recession,” William English, Finance Professor and former economist at the Federal Reserve told ABC.
“Fed probably sees an upward risk for inflation and a downward risk for employment,” English added. “They will have to balance them while considering the path of politics.”
For its part, the Trump administration has greatly refused to rule out the possibility of a recession. Speaking at the White House last week, Trump said a “small disturbance” can be necessary to rejuvenate national production and restore well -paid manufacturing jobs.
Espinosa’s economic perspective presents potential difficulties for Fed, experts said.
If the central increases rates as a means to protect against the possible inflation induced by the rate, the Fed runs the risk of suffocating loans and slowing down the economy. On the other hand, if the Fed reduces rates to stimulate the economy in the face of a possible recession, threatens to increase spending and increase inflation.
“If we were in an environment in which inflation would rise and increased constantly at the same time that growth is slowing down and unemployment is increasing, that is a real challenge for the Fed,” Claudia Sahm, Chief economist of New Century Advisors and former Fed official, told ABC News.
For now, the main dilemma before the Fed comes from the wide range of possible results, experts said. Uncertainty, they said, will probably drive the Central Bank to expect greater clarity.
Investors hopefully expect the Central Bank to leave rates without changes on Wednesday, according to the CME Fedwatch toolA measure of the feeling of the market.
“For now, Fed probably sees waiting as the best approach,” Nersisyan said.
