Powell: No market rescue! The Federal Reserve will stay put and wait for "more signals".

Sina Finance
2025-4-512:51 Sina Finance official account
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Source: Yicai
2025.04.05
Word count: 1620, reading time approximately 2 minutes
Introduction: Julia Coronado, founder of MacroPolicy Perspectives, stated: "The Federal Reserve cannot provide insurance for the economy like it did during the trade wars of 2018 and 2019 because inflation is too high and above their target."
Author | Yicai Hu Yejie
On April 4th local time, Federal Reserve Chairman Powell stated at a business press conference in Arlington that the U.S. economy is facing "more severe" price pressures and growth slowdown risks than previously anticipated a few weeks ago, due to the Trump administration's new round of large-scale tariff policies. He further indicated that in the face of a highly uncertain outlook, monetary policy must remain cautiously observant, saying, "We need to wait for clearer information before considering adjustments to our policy stance."
The new tariff range proposed by Trump far exceeds market expectations, leading to severe market fluctuations and a continuous decline in U.S. stocks. Powell emphasized that although inflation has significantly retreated recently, with the February PCE year-on-year increase dropping to 2.5%, new tariffs could potentially push price levels back up in the coming quarters. If inflation expectations become unanchored, it will pose a significant challenge to the Federal Reserve's future policy path.
Unlike the "preemptive" interest rate cuts in response to trade conflicts in 2019, this time the Federal Reserve is more restrained. Powell stated that the current inflation fundamentals remain high, and hasty easing could instead prolong the period of elevated inflation. "This time we don't need to rush," he reiterated. The current task of the Federal Reserve remains to ensure that inflation returns to the 2% target and to prevent short-term price shocks from evolving into a long-term inflation spiral.
Julia Coronado, founder of the research firm MacroPolicy Perspectives, stated: "The Federal Reserve cannot provide insurance for the economy as it did during the trade wars in 2018 and 2019 because inflation is too high and above their target." She believes a recession will occur in the second half of this year. "Even if they conclude that they need to cut rates, they may do so later and more slowly because we will be in the midst of an inflationary impulse."
The risk of "stagflation" is rising, and interest rate policy is entering an awkward zone.
The Federal Reserve is currently in a dilemma: If it lowers interest rates too early to cushion the economic shock from tariffs, it may stimulate demand and cause the already declining inflation to rise again; but if it remains inactive for too long, the economic momentum may accelerate its decline, and the labor market will also face pressure.
"This is a typical warning of stagflation." Antulio Bomfim, a former Federal Reserve official and current economist at Northern Trust Asset Management, pointed out, "If prices continue to rise while employment subsequently weakens, it means that the policymakers must first observe. Once they decide to act, they must do so decisively and forcefully." In his view, the Federal Reserve is currently more concerned with how to avoid policy missteps—rather than hastily easing and triggering a rebound in inflation, it is better to endure temporarily, even if it incurs a higher economic cost.
In terms of the market, although investors are still betting on interest rate cuts to start within the year, expectations regarding the timing and magnitude have clearly cooled. Powell basically dispelled the possibility of recent easing in his speech. He emphasized that the current market volatility is more about the uncertainty and price disturbances caused by trade policies rather than interest rate issues. "Our top priority is to anchor inflation expectations, rather than offset the direct costs of tariffs through monetary tools."
Previously, the federal funds futures market had anticipated that the probability of the Federal Reserve lowering interest rates at the next meeting was close to 50%. However, after Powell's speech, this probability quickly fell back to around 30%.
How much longer is the "waiting window"?
It is worth noting that Powell mentioned "insufficient information" and "unknown duration of impact" multiple times during his speech, which is seen as suggesting that the current situation is changing too rapidly for the Federal Reserve to formulate clear forward guidance. This somewhat lowers the probability of a rate cut at the May policy meeting, and it also means that macroeconomic data in the coming months will largely dominate market expectations.
Barclays has revised its forecast for the number of rate cuts by the Federal Reserve in 2026 from three to two, with each cut expected to be 25 basis points. Its economic team still maintains the judgment of a 25 basis point cut in June and September this year, but emphasizes that there is a high degree of uncertainty regarding the current interest rate path.
Although Powell did not directly discuss the possibility of an economic recession, he acknowledged that the uncertainty brought by trade policies is suppressing business confidence. Meanwhile, several predictive models have shown that the risk of the United States entering a recession in the coming year is rising.
Analysts indicate that from the Federal Reserve’s perspective, if the PCE or core inflation significantly exceeds 3% in the second quarter, and the labor market simultaneously shows signs of weakness, policymakers may have to reassess their path. This would force the Federal Reserve to make a more difficult trade-off between "stabilizing growth" and "controlling inflation."
Evercore ISI Chairman Krishna Guha commented: "Powell's remarks clearly indicate that the current economic and market conditions are still quite far from triggering the 'Fed Put'. He aims to manage market expectations to leave policy space for the future if the unemployment rate rises significantly." He added that the Federal Reserve will not take preemptive action under the current price shocks caused by tariffs. "Powell's stance is: We're not in a hurry; we still have time."