Following President Trump's unveiling of new tariff policies, there has been an increased anticipation among economists and traders for interest rate cuts by the Federal Reserve. Despite this growing sentiment, Federal Reserve Chair Jerome Powell is adopting a cautious approach.

In light of the tariff announcement, there has been a surge in expectations for rate cuts within the year. Traders, utilizing the CME Group’s FedWatch tool, have shown projections of four rate cuts totaling one percentage point by the end of the year. While some economists have also adjusted their rate cut forecasts, there is no unanimous agreement on the matter.

During a speech in Arlington, Va., Powell emphasized the Fed's stance of monitoring the impact of new policies on the economy before taking significant action. The Fed’s policy committee had initially projected two rate cuts for the year.

Powell emphasized a patient approach, stating that the appropriate path for monetary policy is unclear at the moment, requiring careful consideration. Traders currently predict four quarter-point rate cuts by the end of the year, with the first expected in the June policy committee meeting.

The Federal Reserve has maintained its federal funds rate within a range of 4.25–4.50% this year. Powell and his colleagues aim to gather more clarity on potential policy changes, including tariffs, before making significant adjustments.

Economists have expressed concerns that the tariffs could elevate inflation levels and possibly push the economy toward a recession, adding pressure on employment. Should a recession occur, the Fed would face challenges in balancing its mandate of maintaining low inflation and high employment.

Nationwide Chief Economist Kathy Bostjancic highlighted the dilemma faced by the Fed, with inflation on the rise and the economy showing signs of slowdown. Depending on economic developments, the Fed may have to consider cutting rates more aggressively to counter a recessionary trend.