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Fed chair Powell is coming to terms with the fact that he needs to cut rates now, not later

Fed chair Powell is coming to terms with the fact that he needs to cut rates now, not later


Cryptopolitan
2025-04-03 22:03:22

Jerome Powell is finally facing the problem head-on. After months of dodging the obvious, the Federal Reserve chair is being forced to accept that it’s time to cut interest rates—and fast. The pressure is coming from every angle: Trump’s tariffs, sticky inflation, slowing growth, and rising recession risk. The Fed’s credibility is already bruised from calling past inflation spikes “transitory,” and Powell’s recent return to that word is not sitting well with economists or markets. According to Bloomberg, the Fed’s dilemma right now is brutal. Either they hold rates high and risk pushing the U.S. into a downturn, or they cut too late and get steamrolled by a slowing economy that nobody saved. The decision can’t wait much longer, especially with new tariffs slamming both supply chains and consumer pockets. Trump is forcing the Fed into a corner Powell’s own words last month show he still thinks inflation from the tariffs won’t last. But if he’s wrong—again—the Fed’s already behind. The central bank is dissecting price data for anything tied to tariffs. Officials are tracking which price increases are linked directly to taxed imports, how much gets passed down to consumers, how wide the impact is across sectors, and how people are adjusting their expectations for future inflation. The Fed has historically looked past one-time direct shocks, but indirect effects are much stickier. St. Louis Fed President Alberto Musalem said a 10% increase in tariffs could push inflation up by as much as 1.2 percentage points, with more than half of that from indirect pressure. “I would be wary of assuming that the impact of tariff increases on inflation will be entirely temporary, or that a full ‘look-through’ strategy will necessarily be appropriate,” Musalem said on March 26. That model was based on tariffs before Trump’s latest announcement. But Bloomberg now puts the average U.S. tariff rate at around 22%, up from just 2.3% last year. That kind of jump nearly doubles the inflation threat laid out by Musalem’s staff. The Fed is stuck between inflation and recession The Fed hasn’t had to make a call like this since the 1980s. Back then, Paul Volcker chose to crush inflation, hiking rates so hard the economy slammed into a recession. That move still hangs over every inflation discussion at the Fed. Now Powell is in a similar spot—but this time it’s tariffs, not oil shocks, that are jamming up the economy. The risk is clear: if growth slows but the Fed waits too long, they won’t be able to react in time. But Trump’s team isn’t backing off. Commerce Secretary Howard Lutnick told CNBC on Thursday: “It’s time to change the rules and make the rules be stacked fairly with the United States of America… We need to stop supporting the rest of the world and start supporting American workers.” But that approach isn’t cost-free. Consumers are already feeling the hit. Atlanta Fed President Raphael Bostic said in an interview with Bloomberg that he’s watching not just pass-through costs, but also how consumers are reacting emotionally. Expectations matter. People are bracing for more inflation, both short-term and long-term, and that mindset could make price hikes stick even harder. Powell said Fed staff are modeling a wide range of tariff scenarios, including the assumption that other countries will hit back. But he admitted the picture’s still a mess. “Hard to say when that will be,” he said, referring to when the Fed might have a reliable forecast again. Cryptopolitan Academy: Tired of market swings? Learn how DeFi can help you build steady passive income. Register Now


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