Zinger Key Points
- Trump urges Fed to cut rates, calling April 2 “Liberation Day” as reciprocal tariffs take effect across U.S. trade partners.
- Powell downplays tariff-driven inflation, calling it “transitory,” but acknowledges some colleagues raised forecasts due to higher tariffs.
Meanwhile, the Fed signaled rising economic uncertainty, slashed growth forecasts and raised inflation expectations, leaving markets to decipher its next move.
In a post on his Truth Social platform shortly after the Federal Open Market Committee (FOMC) kept interest rates steady at 4.25%-4.50% on Wednesday, Trump urged the Central Bank to “do the right” thing and cut rates.
He indicated that tariffs would “transition their way through the economy,” justifying lower borrowing costs.
Fed’s New Economic Outlook: Slower Growth, Stubborn Inflation
The Federal Reserve’s latest economic projections painted a more challenging picture for the U.S. economy compared to December.
The Fed now expects real GDP to expand by just 1.7% this year, down from its prior 2.1% estimate. Growth projections for 2026 and 2027 were also revised slightly downward.
At the same time, inflation estimates rose, with the Personal Consumption Expenditures price index forecasted to reach 2.7% in 2025, up from 2.5%. The core PCE inflation rate, which excludes food and energy, was also revised upward to 2.8% from 2.5%.
The Fed maintained its projection for two rate cuts this year and the next.
| Variable | 2025 | 2026 | 2027 | Longer Run |
|---|---|---|---|---|
| Change in real GDP | 1.7 | 1.8 | 1.8 | 1.8 |
| Dec. projection | 2.1 | 2.0 | 1.9 | 1.8 |
| Unemployment rate | 4.4 | 4.3 | 4.3 | 4.2 |
| Dec. projection | 4.3 | 4.3 | 4.3 | 4.2 |
| PCE inflation | 2.7 | 2.2 | 2.0 | 2.0 |
| Dec. projection | 2.5 | 2.1 | 2.0 | 2.0 |
| Core PCE inflation | 2.8 | 2.1 | 2.0 | |
| Dec. projection | 2.5 | 2.1 | 2.0 | |
| Federal funds rate | 3.9 | 3.4 | 3.1 | 3.0 |
| Dec. projection | 3.9 | 3.4 | 3.1 | 3.0 |
Source: Federal Reserve
Powell Dismisses Tariffs Worries, But Markets See Dovish Tilt
Despite the inflation uptick, Fed Chair Jerome Powell struck a cautious but reassuring tone, suggesting that tariff-driven price increases may be “transitory” and not necessarily warrant monetary intervention.
Yet, he admitted that many of his colleagues adjusted their inflation forecasts to reflect the impact of higher tariffs.
Powell also downplayed concerns from the latest University of Michigan’s Consumer Survey, which showed inflation expectations hitting 30-year highs, calling the data potentially an outlier.
When asked about the possibility of a rate cut in May, Powell made it clear: “We’re not going to be in any hurry to move.”
Markets took the Fed’s stance as dovish, with both the U.S. dollar and Treasury yields weakened.
“Market interpreted the Fed as incrementally/slightly dovish on balance, with the USD depreciating between 0.2% and 0.5%,” Bank of America economist Aditya Bhave said.
“In our view, this puts a lot of focus on the New York Fed inflation expectations measure. If it were to also pick up, Powell could change his tone.”
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Originally Posted March 20, 2025 – Trump Urges Fed To Cut Interest Rates As ‘Liberation Day In America’ Looms
Disclosure: Benzinga
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