According to ChainCatcher, Nick Timiraos, a Wall Street Journal reporter known as the "Fed's mouthpiece," wrote that Trump's tariff policy was chaotic, putting the Federal Reserve in a dilemma: whether to address economic recession or stagflation. This week, the Fed officials' two-day policy meeting will focus on carefully communicating such difficult trade-offs.
Federal Reserve Chairman Jerome Powell and his colleagues may continue to take a wait-and-see approach, refrain from cutting interest rates, and plan how to fine-tune this strategy. This "strategic patience" reflects the Fed officials' reluctance to prematurely abandon their commitment to fighting inflation.
The challenge currently facing the Federal Reserve can be likened to a goalkeeper's dilemma: whether to "dive to the right" - maintaining interest rates to curb inflation, or "dive to the left" - addressing slowing economic growth through rate cuts. "We will make a judgment that is undoubtedly very difficult," Powell said last month.
If the Federal Reserve acts too early and tries to implement stimulus measures before an economic slowdown, it may exacerbate short-term inflationary pressures caused by tariffs or commodity shortages.
"This will not be a cycle where the Fed cuts rates early because they anticipate an economic slowdown. They need to see actual signs of slowdown in the data, especially in the labor market," said Richard Clarida, who served as Powell's deputy for three years.
