The Federal Reserve is finding fewer reasons to get out of its interest rate holding pattern with constantly evolving trade policy from the White House and fears that cooling inflation could take off again with tariffs in effect on America’s biggest trading partners.

Interest rates have been frozen since last year as the Fed hoped to see more restrictive policy get inflation under control while keeping the labor market and economy on track to achieve a difficult soft landing. But now the central bank is also trying to decipher whiplash tariff rollouts and pullbacks that have stirred panic on Wall Street and caused challenges for businesses to plan. That has prompted officials to stand pat while the dust settles.

The Federal Open Markets Committee voted last week to keep rates steady again and continued to preach caution.

Inflation has cooled for three consecutive months and had its smallest increase in April in more than four years. Prices rose 2.3% compared to a year ago, down from 2.4% in March even with the beginning of President Donald Trump’s “Liberation Day” tariffs that have been somewhat rolled back to a 10% baseline except for China after an agreement between Washington and Beijing.

While April’s inflation data brought modest progress in the Federal Reserve’s goal of bringing inflation to its target of 2%, economists are also expecting the effects of tariffs to be more visible this summer. The sweeping April 5 tariffs will take some time to creep into inflation data and many companies stockpiled goods in advance to avoid price hikes in hopes of trade wars being resolved.

“The April CPI report shows inflation trends as they could have been. Upcoming reports will increasingly reflect the passthrough from recent steep tariff increases,” said Gregory Daco, chief economist at EY.

Fed officials are anticipating price increases because of tariffs that are likely to slow its war on inflation that has remained above 2% since coming down from nearly double digits in 2022.

“If the increases in tariffs announced so far are sustained, they are likely to interrupt progress on disinflation and generate at least a temporary rise in inflation. Whether tariffs create persistent upward pressure on inflation will depend on how trade policy is implemented, the pass-through to consumer prices, the reaction of supply chains, and the performance of the economy,” Fed vice chair Phillip Jefferson said in a speech on Wednesday.

Fed chair Jerome Powell and other officials have taken a cautious approach to dealing with Trump’s tariffs and said it will be hard to discern what inflationary pressures could be directly attributed to them or broader economic factors. April’s inflation report brought little reason for policymakers to shift from that strategy with all the trade uncertainty facing them.

In a post on social media, Trump once again renewed his call for the Fed to cut interest rates. He has consistently pushed the central bank to lower rates as he rolled out tariffs and concerns about the economy heading to a recession as a result began to bubble.

“No Inflation, and Prices of Gasoline, Energy, Groceries, and practically everything else, are DOWN!!! THE FED must lower the RATE, like Europe and China have done,” he wrote on Truth Social. “What is wrong with Too Late Powell? Not fair to America, which is ready to blossom? Just let it all happen, it will be a beautiful thing!”

But Trump’s demands have run into a skeptical and cautious Fed that is trying to position itself to be able to respond to uncertainties facing the economy. Investors and economists have cut back expectations on the number of rate cuts this year and are bracing for them to stay higher for longer.

The labor market has held up despite fears of a downturn as employers have been hesitant to let go of workers after difficulties finding them in the post-pandemic recovery.

Businesses and consumers are also frequently being hit with tariff announcements later delayed or rolled back, and the White House says it is negotiating trade deals with dozens of countries that could alter the outlook with no clear timelines or indications of what’s to come.

“For the Fed, tame inflation dynamics and resilient labor market conditions support the case for holding rates steady beyond mid-year. With little clarity on the final status quo for trade policy and Fed policymakers unlikely to preempt any growth or inflation developments, we now only anticipate two Fed rate cuts,” Daco said.

Fed officials have argued that keeping rates in place allows them to maneuver with whatever comes next.

“With the increased risks to both sides of our mandate, I believe that the current stance of monetary policy is well positioned to respond in a timely way to potential economic developments,” Jefferson said.

Have a news tip? Contact Austin Denean at atdenean@sbgtv.com or at x.com/austindenean.