The Fed’s Word Of The Day: “Uncertainty”

In recent speeches and appearances of policymakers at the Federal Reserve, one word has been a central theme: “uncertainty.”

Two months after President Donald Trump announced his “Liberation Day” tariffs, Fed officials seem no closer to piercing the fog of the trade war that has kept them from moving the central bank’s benchmark interest rate.

Three Fed officials who spoke separately on Tuesday emphasized the need for more clarity on trade policy and how the economy will react to the tariffs before making any moves.

The officials repeated concerns they’ve voiced repeatedly in recent months: that the sweeping and frequently changing tariffs could raise prices for consumers and slow the economy.

Why Does Tariff Uncertainty Matter to the Fed?

The Fed, which sets the nation’s monetary policy, is tasked with keeping inflation under control and employment high, mainly by adjusting its influential fed funds rate, which influences borrowing costs on all kinds of loans.

The Fed’s dilemma is whether to cut the Fed funds rate from its current high level to boost the economy and stave off unemployment or keep it higher for longer to quell inflation that’s still running above the Fed’s goal of a 2% annual rate.

The answer to the impasse, so far, has been to do nothing and see what happens. And so far, neither a resurgence of inflation nor a spike in unemployment has materialized.

“There is a great deal of uncertainty out there, making it quite difficult to forecast the economy with confidence,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, wrote Tuesday in an essay posted online. “Given that, I continue to believe the best approach for monetary policy is patience. As the economy remains broadly healthy, we have space to wait and see how the heightened uncertainty affects employment and prices.”

Lisa D. Cook, a governor of the Federal Reserve, made similar comments Tuesday in a speech at the Council on Foreign Relations in New York.

“I see the U.S. economy as still being in a solid position, but heightened uncertainty poses risks to both price stability and unemployment,” Cook said in prepared remarks. “I will continue to monitor developments closely as I consider monetary policy decisions.”

Will The Fed Cut Its Influential Interest Rate?

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said before Trump launched his tariff campaign, the economy was headed in the right direction. If those conditions returned, lower interest rates would be in order, he said in a Q&A in Davenport, Iowa.

“Where we were coming into April 2 was stable, full employment, with prices coming down to the 2% target, and therefore rates would be a fair bit below where they are today,” Goolsbee said.

“But with the uncertainty, I can’t express that with too much confidence, because who knows if we wake up tomorrow and the tariffs are going back to 50% on the world,” he continued. “There’s a lot of domestic production that’s going to suffer, and we have to figure out how to deal with that.”

The Fed’s strategy has provoked fiery criticism from Trump, who has demanded lower rates. For their part, Fed officials, including Fed Chair Jerome Powell, have insisted they make policy decisions based on economic and not political considerations. They have kept interest rates the same throughout Trump’s presidency so far.

Financial markets have translated the Fed’s noncommittal message into an expectation that the central bank will hold off on rate cuts during the summer. On Tuesday, investors were pricing in a nearly 70% chance that the central bank would at least make one rate cut by September, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.