Trump Tariff Pause Won’t Shift Fundamentals for a Fed Bracing for Risks Ahead
Washington, D.C. – April 10, 2025, 10:42 AM PDT – President Donald Trump’s unexpected 90-day pause on steep tariffs for over 75 trading partners, announced Wednesday, April 9, has sparked a fleeting rally in global markets, but it’s unlikely to alter the cautious stance of a U.S. Federal Reserve increasingly wary of economic turbulence on the horizon. While the Dow soared nearly 3,000 points and the S&P 500 jumped 9.5% yesterday, Fed officials signal that the underlying risks—rising inflation, slowing growth, and persistent uncertainty—remain firmly in place, leaving monetary policy on a steady, watchful course.
Trump’s pivot, which dialed back reciprocal tariffs to a universal 10% for most nations while hiking duties on China to 125%, came after a week of market carnage that wiped trillions from global equities. The White House framed it as a tactical breather, with Treasury Secretary Scott Bessent touting negotiations with dozens of countries as proof of leverage. Yet, the reprieve excludes China, Canada, and Mexico—key U.S. import sources—where tariffs of 125% and 25% respectively still loom, alongside a baseline 10% duty on all imports. “The pause lessens the immediate stress, but the fundamentals haven’t shifted,” said Fed Governor Michelle Bowman in a Thursday statement. “We’re still staring at recession risks and inflationary pressures.”
The Fed’s outlook, reset in recent weeks by Trump’s trade agenda, reflects a dual threat: tariffs could jolt consumer prices upward—potentially reversing February’s 2.8% inflation dip—while choking growth through disrupted supply chains and shaken confidence. March CPI data, due at 5:30 AM PDT today, may offer clues, but Fed Chair Jerome Powell has emphasized a “wait-and-see” approach. Speaking last month in Arlington, Virginia, Powell warned that tariffs could trigger “higher inflation and slower growth,” a view echoed in the Fed’s March 19 decision to hold rates at 4.25%-4.5%. “We’re not rushing to cut,” Powell reiterated post-pause, citing a resilient economy—unemployment at 4.1%—but noting tariffs’ unpredictable bite.
Financial markets, while buoyed Wednesday, slipped Thursday, with the Nasdaq down 5% by midday as euphoria faded. U.S. Treasury yields, which spiked to 4.5% during the tariff rollout, eased slightly to 4.2%, yet signal lingering investor angst. “The bond market’s telling us faith in U.S. assets is wobbly,” said Deutsche Bank’s George Saravelos, who earlier floated Fed intervention if turbulence deepens—a scenario officials haven’t endorsed. Posts on X mirror the unease: “Tariff pause is a Band-Aid, not a fix—Fed’s hands are tied,” one user wrote, capturing sentiment that the central bank faces a policy bind.
Analysts agree the pause buys time but doesn’t erase the stakes. Citi’s team warned of an unavoidable “slowdown in growth and rise in inflation,” predicting a May or June rate cut if recession odds climb from Goldman Sachs’ revised 45%. The 10% baseline tariff, plus hefty levies on China, risks supply chain upheaval—KPMG’s Diane Swonk noted firms like Apple, down 19% this week, face a “major hit.” Meanwhile, Trump’s push for lower rates—“The Fed’s too slow!” he tweeted April 8—clashes with Powell’s focus on anchoring inflation expectations, not preemptively easing.
For the Fed, the tariff saga is a three-month fog of uncertainty, not a game-changer. With corporate bond issuance stalling—$10 billion in April versus $190 billion in March—and consumer prices volatile (March saw a rare monthly drop), policymakers see no clear path to deviate from their current stance. “The economy’s solid, but the risks are elevated,” Powell said, signaling the Fed will hold firm until the tariff dust settles—or forces its hand.
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