Markets lower expectations for Fed rate cut amid tariff turmoil

Fed Governor Waller said tariff inflation could be “temporary,” and Chair Powell said the bank will take a “wait-and-see” approach

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In the wake of recent tariff turmoil in markets, investors have walked back their expectations for an interest rate cut from the Federal Reserve come May.

Fed funds futures markets are now pricing in a 16% chance of a 25bps cut next month. That’s down from 45% just a week ago.

What changed? FOMC members started talking.

Fed Governor Chris Waller said yesterday that the inflationary impact of tariffs could be “temporary.” He’s said that before, but he added that should the economy slow too much, he expects the FOMC will cut “sooner.”

Chair Jerome Powell said earlier this month that the central bank plans to take a “wait-and-see” approach to Trump’s trade policies. Given the runaround the administration has given markets these past two weeks, this isn’t surprising. It’s hard to speculate too much on the inflationary impacts when the tariff rates change on an almost daily basis.

“We are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said days after Trump’s so-called Liberation Day tariff announcement.

Trump has argued that the Fed needs to act now in lowering rates, writing in a Truth Social post that Powell is “always late” in reacting.

Up ahead, Governor Lisa Cook is slated to speak this evening at an event in Washington. Chair Powell will speak Wednesday, followed by Governor Michael Barr on Thursday.

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