Fed Expected to Hold Rates Steady Despite Positive April Inflation and Tariff Risks

Despite a widely anticipated moderation in inflation in April, the U.S. Federal Reserve is poised to maintain its current interest rate levels, as policymakers continue to weigh the looming impact of President Trump’s sweeping tariff policy. While the latest data offer some optimism, Federal Reserve officials remain cautious, with many viewing the April inflation slowdown as potentially fleeting amid intensifying trade-related price pressures.

April Core Inflation Cools, but Fed Maintains Caution

The core Personal Consumption Expenditures (PCE) index — the Federal Reserve’s preferred inflation gauge, excluding volatile food and energy components — rose 2.5% year-over-year in April, down from 2.7% in March. On a monthly basis, core PCE rose just 0.1%, matching both the prior month’s pace and analyst expectations. The figures reflect a modest cooling in underlying inflationary pressures, providing a momentary breather to policymakers monitoring persistent price growth.

Economists, however, have cautioned against interpreting April’s data as a turning point. LPL Financial’s chief economist Jeffrey Roach called the reading “as good as it gets,” adding that he expects inflation to rebound in the coming months as the full effects of President Trump’s new tariffs filter through the economy.

Highlights:

• Core PCE rose 2.5% year-over-year in April vs. 2.7% in March.

• Monthly core inflation held steady at 0.1%.

• Economists warn the cooling may be temporary due to tariff effects.

Fed Eyes Tariff-Driven Inflation Risks as Outlook Remains Uncertain

With President Trump’s tariffs now fully in effect, concerns are rising within the Federal Reserve that inflation could reaccelerate as businesses adjust to higher input costs. Fed minutes from the May 6-7 policy meeting revealed widespread concern among members that price pressures stemming from tariffs could be more enduring than previously expected. Particular attention has been paid to duties on intermediate goods — such as metals and machinery parts — which could have broader implications for industrial production and consumer prices alike.

Several members argued that potential supply chain disruptions, reminiscent of those seen during the pandemic, could amplify these inflationary pressures. Others noted that the path of inflation remains highly uncertain, with possible mitigating factors including subdued consumer price tolerance, a softening economy, and potential de-escalation of tariffs through future trade negotiations.

Highlights:

• Fed minutes indicate broad concern about longer-lasting inflation from tariffs.

• Supply chain disruptions and intermediate goods duties flagged as key risks.

• Some officials believe other economic forces may offset tariff effects.

Powell Holds Neutral Ground as Trump Pushes for Rate Cuts

President Trump has made repeated public and private appeals for interest rate cuts, arguing that the current inflation pressures are temporary and tied to one-off events such as trade actions. In a Thursday meeting with Fed Chair Jerome Powell, Trump reportedly reiterated this demand, calling the Fed’s stance a “mistake.” The White House has argued that any tariff-induced inflation should be treated as a non-structural anomaly that doesn’t merit prolonged monetary tightening.

However, Powell made no policy commitments during the meeting. According to a Fed statement, he reiterated that monetary decisions would continue to be guided solely by economic data and forward-looking risks. Dallas Fed President Lorie Logan later reinforced this message in a speech Thursday night, saying rates were “in a good place” and that policy shifts would only follow clear evidence of sustained change in economic conditions.

Highlights:

• Trump urged Powell to lower rates, calling current policy a “mistake.”

• Powell emphasized data dependency and refused to commit to rate changes.

• Dallas Fed’s Logan warned against premature cuts that could fuel inflation.

Tariff Uncertainty and Trade Tensions Cloud Monetary Outlook

Fed officials remain split over whether to “look through” the inflationary effects of tariffs as transitory or to respond preemptively to potential stickiness. Minneapolis Fed President Neel Kashkari noted that trade tensions could take “months or years” to resolve and warned of continued tit-for-tat escalations that might lead to entrenched price increases. In contrast, some Fed voices have expressed confidence that consumer behavior and competitive market forces could suppress firms’ pricing power, potentially reducing the need for policy intervention.

The path ahead for the Fed remains highly data-dependent, with upcoming inflation prints, labor market figures, and global trade developments likely to shape decisions over the summer. Markets are currently pricing in a prolonged rate pause, with growing speculation that the Fed may not cut rates until late 2025 if inflation proves more persistent.

Highlights:

• Fed divided on whether tariff inflation is transitory or structural.

• Kashkari warns of long-term trade conflict risks.

• Future rate moves expected to depend heavily on upcoming data.