Federal Reserve Chair Jerome Powell just made it clear: rate cuts aren't coming anytime soon. In a speech at the Economic Club of Chicago, Powell said the Fed's top priority is keeping inflation expectations anchored—even as tariffs threaten to push prices higher. The word that caught economists' attention? “Certain.” As in, the Fed must make certain that tariff-driven price spikes don't spiral into persistent inflation. JPMorgan's (JPM, Financial) Michael Feroli called it a direct signal that the Fed sees price stability as a non-negotiable—meaning hopes for a near-term policy pivot are wishful thinking. Stocks dipped, yields wobbled, and the market got a cold dose of reality.
The context? Chaos from the Trump tariff machine. After walking back reciprocal tariffs earlier this month, Trump greenlit a 10% baseline global duty and slapped more than 100% tariffs on China. He's hinted at more to come—autos, semiconductors, pharma. Powell isn't ignoring the impact. He pegged March inflation at 2.3%, still above the Fed's 2% comfort zone, and warned that the inflationary hit from tariffs could stick around. “The size and scope of these duties are bigger than expected,” he said. The key risk: a temporary bump in prices becoming a permanent feature if expectations start drifting.
The labor market is still holding up—228,000 jobs added last month, unemployment at 4.2%—but Powell didn't mince words. If inflation and employment goals collide, the Fed will side with price stability. “That scenario would be challenging,” he admitted, hinting that rate cuts won't happen until inflation is firmly under control. The Fed's balance sheet runoff will continue, and Powell said there's still room to shrink its portfolio. Translation? The Fed isn't here to rescue markets. It's here to make sure inflation doesn't become the new normal.
