Fed to Remain Patient amid Rising Stagflationary Risks
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The latest Fed communication reenforces our view that the Fed will not act pre-emptively to mitigate a projected slowdown in the economy. The Fed will likely remain in a wait and see mode until economic data more clearly indicate which way the current risks resulting from the tariff policies materialize.

Fed to Remain Patient amid Rising Stagflationary Risks

May 07, 2025

The latest Fed communication reenforces our view that the Fed will not act pre-emptively to mitigate a projected slowdown in the economy. The Fed will likely remain in a wait and see mode until economic data more clearly indicate which way the current risks resulting from the tariff policies materialize.

Trusted Insights for What’s Ahead®

  • The Fed kept its policy interest rate target unchanged at the conclusion of the FOMC meeting. It remains our view that the central bank will resume normalizing policy this year.
  • Given the Fed’s increased caution amid elevated uncertainty, potentially higher-than-previously-anticipated inflation due to the expiration of the de minimis tariff exemption and the recent better-than-expected hard data, we pushed back the timing of the first rate cut to September from July. We still expect three rate cuts this year – in September, October, and December. 
  • We continue to expect a sizable deterioration in the labor market to outweigh the inflationary impact of the tariff policy pushing the Fed to cut rates later this year.
  • The FOMC noted “the risks of higher unemployment and higher inflation have risen” amid increased uncertainty. Thi
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Author

Yelena Shulyatyeva

Yelena Shulyatyeva

Senior US Economist

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