Fed expected to extend pause in rate cuts again this week
NEW YORK
The U.S. Federal Reserve is widely expected to extend a recent pause in rate cuts this week as it waits to see how President Donald Trump's stop-start tariff rollout affects the health of the world's largest economy.
Most economists expect the tariffs introduced since January to push up prices and cool economic growth, at least in the short run, potentially keeping the Fed on hold for longer.
"The Fed has to be very focused on maintaining inflation so that it doesn't start moving back up in a more persistent way," said Loretta Mester, who recently stepped down after a decade as president of the Cleveland Fed.
"That would undermine all the work that was done over the last three years of getting inflation down," she told AFP.
The Fed has held its key interest rate at between 4.25 percent and 4.5 percent since December, as it continues its plan to bring inflation to the bank's long-term target of 2 percent, with another eye firmly fixed on keeping unemployment under control.
Recent data points to inflation hitting that target ahead of the introduction of Trump's "Liberation Day" tariffs, while unemployment has remained relatively stable, hugging close to historic lows.
At the same time, various "softer" data points such as consumer confidence surveys have pointed to a sharp decline in optimism about the health of the U.S. economy, and growing concerns about inflation.
"Whether the economy enters a recession or not, it's hard to say at this point," said Mester, now an adjunct professor of finance at the Wharton School of the University of Pennsylvania.
"I think the committee remains in good condition here, and most likely they'll remain on hold at this meeting," said Jim Bullard, the long-serving former president of the St. Louis Fed.
"I think it's a good place for them to be while there's a lot of turbulence in the trade war," added Bullard, now dean of the Daniels School of Business at Purdue University.
Financial markets overwhelmingly expect the Fed to announce another rate cut pause on May 7.
U.S. hiring data for April came in better than expected, lowering anxiety about the health of the labor market and reducing pressure on the Fed's rate-setting committee to reach for rate cuts.
Economists at several large banks including Goldman Sachs and Barclays subsequently delayed their expectations for rate cuts from June to July.
"Cutting in late July allows the committee to see more data on the evolution of the labor market, and should benefit from resolving uncertainty about tariffs and fiscal policy," economists at Barclays wrote in a note to clients.
Other analysts see rate cuts happening even later, depending on the effects of the tariffs.
