Fed Expected to Pause Rate Cuts Amid Economic Uncertainty

The U.S. Federal Reserve is expected to keep interest rates steady as President Donald Trump's new tariffs introduce significant uncertainty into the economic outlook, despite recent data showing resilience in the labor market with higher-than-expected job gains and stable unemployment. Major brokerages, including Goldman Sachs and Barclays, have postponed their expectations for the next rate cut to July, citing the stronger jobs report and ongoing trade policy uncertainty. The Fed has held its policy rate in the 4.25-4.50% range since December, and while March projections pointed to two rate cuts this year, recent trade developments have cast doubt on that outlook. Trump's tariffs have triggered inflation concerns, a contraction in GDP in the first quarter of 2025, and declining business and consumer sentiment, though consumer spending remains resilient. Fed policymakers are wary of the inflationary and employment impacts of tariffs and are likely to maintain a cautious stance, with investors awaiting further guidance from Fed Chair Jerome Powell. While the labor market remains a bright spot, ongoing trade tensions and mixed economic signals mean the Fed is likely to extend its pause on rate cuts until there is greater clarity.