US Fed Chair Jerome Powell takes wait-and-watch approach as uncertainty looms from Donald Trump's tariff plans

Trump’s tariff plan, which he has floated in various forms, includes duties ranging from 10 percent to 60 percent on Chinese imports, a 25 percent tariff on all goods from Mexico and Canada, and across-the-board levies of 10 percent-20 percent on imports from other countries. While he has declared that some tariffs could be implemented as early as this week, his administration has yet to finalise the specifics.

The lack of clarity is a key concern for the Fed, as tariffs have historically contributed to inflationary pressures by increasing costs for businesses and consumers. However, Powell avoided making direct assessments, adding that the Fed would continue to monitor developments rather than preemptively adjust rates based on speculation.

Despite Powell’s cautious stance, financial markets showed some nervousness. Bond yields rose on concerns that tariffs could prolong inflationary pressures, while the S&P 500 fell 0.5 percent, the Nasdaq 100 dropped 0.3 percent, and the Dow Jones Industrial Average slipped 0.3 percent.

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Powell’s comments show the Fed is maintaining independence from political considerations, even as Trump’s economic policies take shape. While the central bank has cut rates by a full percentage point over the past four months, Powell signalled that further moves would depend on inflation data and labour market trends rather than political developments.

For now, uncertainty remains. Until Trump’s tariff policies are fully articulated and their economic effects become clearer, the Fed appears to be in a 'wait-and-watch' mode. Powell reiterated that the central bank will continue assessing market conditions and policy impacts before considering any adjustments.

Economists are watching closely for any further statements from the Trump administration that could influence inflation or economic growth.

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