Federal Reserve officials have recently made it clear that although the Trump administration's trade policies may drag down economic growth, they will not respond quickly by cutting interest rates in the short term. The core logic is that imposing tariffs may continue to push up inflation, and this risk may even offset the demand for loose monetary policy due to economic slowdown. The minutes of the March meeting showed that decision-makers have reached a consensus against the backdrop of "increasing uncertainty" that interest rate adjustments need to be extremely cautious.

The 'double-edged sword effect' of tariffs

The comprehensive tariffs announced by Trump in early April caused global market panic, with stock markets plummeting and bond markets volatile. Although it later partially withdrew its decision and stimulated a stock market rebound, the policy's repetitiveness has exacerbated the uncertainty of the economic outlook. Citibank pointed out that even if some tariffs are temporarily suspended, the long-term shadow of trade frictions will still suppress corporate investment and household spending, while previous tariffs have begun to push up commodity prices.

The Federal Reserve's' Policy Toolbox Dilemma '

Faced with the pressure of rising inflation and slowing growth, the Federal Reserve is caught in a dilemma: if it prioritizes curbing inflation, it needs to maintain high interest rates, which may exacerbate unemployment; If interest rate cuts stimulate the economy, there is a risk of allowing inflation to spiral out of control. St. Louis Federal Reserve President Moses Lem and Minneapolis Federal Reserve President Kashkari both warned that the price increase caused by tariffs is not a "one-time shock", and its chain reaction may lead to long-term inflation.

The Gap between Market Expectations and Policy Reality

Although financial markets once bet that the Federal Reserve will aggressively cut interest rates, policymakers emphasize that "wait-and-see" is the current core strategy. Richmond Federal Reserve Chairman Barkin's analogy is particularly vivid: "Driving in thick fog, you should neither press the accelerator hard nor brake abruptly." This cautious attitude reflects that the actual impact of Trump's policies is still full of variables.

Summary: Where is the way forward? Monetary policy on the balance beam

The Federal Reserve's March minutes bluntly stated that there may be a "painful trade-off" in the future. Musa Lem predicts that the US economic growth rate will be significantly below trend levels, but a recession is not the baseline scenario; Kashkari pointed out that tariffs simultaneously suppress investment and consumption, and the tightening effect of policies has partially replaced the demand for interest rate hikes. In the tug of war between inflation expectations and employment targets, the only certainty for the Federal Reserve may be "uncertainty itself" - as Barkin said, when consumer savings run out and price pressures persist, any policy action could trigger a new chain reaction. The monetary policy in the fog of this trade war is destined to be a trek on thin ice.