The focus on Wednesday’s Fed update was always going to be on what Federal Reserve Chair Jerome Powell would say about trade wars.
He was particularly coy about what the central bank will do next in the face of a raft of tariffs due to come into effect on July 8 at the press conference after keeping borrowing costs unchanged.
One reason is because it’s still far from clear what the final tariffs
will be, much less how they will affect the economy. President Donald Trump’s post that the first big trade deal is at hand with the U.K. raises hopes that clarity is on the way, though.
Powell’s second problem is determining how the tariffs will actually impact inflation and jobs. In theory, the tariffs raise prices for U.S. consumers—at least until local substitutes are found—because the foreign goods they buy are suddenly more expensive. Shortages can make things even worse.
However, if the tariffs cripple activity, companies may find it impossible to pass on those higher costs. In which case prices don’t rise much at all. The flip side of that, of course, is that those same companies may
start shedding workers to cope with smaller profits.
Maximizing employment is the other half of the Fed’s mandate and something central banks the world over are feeling the pressure on. China and the European Central Bank, both less worried about inflation than the Fed, are already cutting rates on concerns that uncertainty will quickly translate into job losses.
Traders are confident that Powell will start
lowering rates soon, but it will take some convincing evidence that jobs are being destroyed before he’ll step in. If that doesn’t happen, worries about inflation will keep interest rates higher.
—Brian Swint
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Fed Warns of Growing Economic Uncertainty, Slower Growth
Federal Reserve officials said the risks of higher unemployment and higher inflation have risen, and so has uncertainty about the economic outlook. Policymakers, as expected, kept interest rates unchanged for the third consecutive time while they waited for clarity.
- Their unanimous decision is a vote of confidence in the strength of the U.S. economy, even as inflation-adjusted gross domestic product growth contracted 0.3% in the first quarter. President Trump has pushed for lower interest rates while imposing aggressive tariffs alongside federal spending cuts.
- The Fed’s wait-and-see approach for monetary policy means the central bank won’t be able to take preemptive action to get ahead of a potential economic slowdown, Chair Jerome Powell said. The economy is healthy and the underlying inflation picture gives policymakers leeway to wait.
- Traders are penciling in an 80.2% likelihood that policymakers will keep rates at current levels at their June meeting, according to CME’s FedWatch tool. Short-term inflation expectations jumped to 3.6% in March from 3.1% in February, a New York Fed survey found.
- Powell
said central bankers aren’t giving Congress advice as lawmakers consider spending and tax cuts. “They don’t need my advice and our advice on how to do fiscal policy any more than we need their advice on monetary policy,” he said, prompting a laugh from journalists at the press conference.
What’s Next: Powell has been the target of criticism by Trump in recent weeks, but he has remained restrained in his reaction. Asked if he would want to meet with the president if given the opportunity, Powell suggested it wasn’t within the scope of his role. “I don’t think it’s up to a Fed chair to seek a meeting with the president.”
—Megan Leonhardt, Nicole
Goodkind, and Janet H. Cho
Trump Flags First Trade Deal. Why It’s a Blueprint.
The U.S. has struck a trade agreement with the U.K., the first deal since President Trump’s Liberation Day tariffs announcements. The details will be carefully watched around the world as a possible blueprint for what
can be negotiated and whether tariffs can be reduced.
- Trump said that a “major trade deal” will be announced at 10 a.m. on Thursday, one that will be the “first of many,” in a post on the Truth Social social-media platform on Wednesday.
- In a subsequent post Thursday, Trump said the agreement is a “full and comprehensive one that will cement the relationship” between the two countries. The hope is that it will provide a template for further arrangements that can bring overall levies down to minimal levels before the expiration of the pause on the tariff plan on July 8.
- Other countries negotiating with the Trump administration will be able to study the arrangement to decide how much is worth conceding in negotiations. In theory, Britain should get the best deal possible.
What’s Next: While the focus will be on the details of the U.S.-U.K. trade agreement, Trump said many other deals in “serious stages of negotiation” will follow.
—Brian Swint
White House to Revamp Biden-Era AI Chip Export Curbs
Chip makers could get a boost by a White House plan to overhaul regulations from the
previous administration that limited the number of artificial-intelligence chips countries could buy. Those Biden-era rules were slated to take effect next week, but the Commerce Department plans to replace them.
- A Commerce Department spokeswoman told The Wall Street Journal that the Biden rules were overly complex and threatened to stymie American innovation. That’s a reprieve for tech companies, which have long fought the so-called AI Diffusion rule. But the industry still faces export controls.
- The Trump administration recently cracked down on Nvidia selling a specialized AI chip to China, forcing it to take a $5.5 billion charge. The administration has to figure out how to prevent adversaries like China from getting advanced chips without hurting the U.S. tech industry.
- The AI Diffusion rules sorted countries into three groups, the first a small group of allies that could freely purchase AI chips from the U.S., a second bucket including China and Iran banned from buying the chips, and a third category including all other countries with limits on purchases.
- Countries were likely
