| I’m Chris Anstey, an economics editor in Boston. Today we’re looking at the Fed’s latest thinking on the outlook. Send us feedback and tips to ecodaily@bloomberg.net. And if you aren’t yet signed up to receive this newsletter, you can do so here. After Trump threatened to take US tariff rates to the highest levels in more than a century, the job of the Federal Reserve has effectively shifted from what it can do to nudge the economy toward its goals — stable 2% inflation and full employment — to how it can limit any damage. That’s basically where the Fed now is, after it left rates unchanged for a third straight meeting on Wednesday, and Chair Jerome Powell avoided offering any timing on when rate reductions might resume. The costs of being late to cut rates is small relative to the potential for a “big mistake” if the Fed eased decisively and inflation expectations shot up, while the labor market held steady, said former New York Fed President Bill Dudley. “It is about risk management — try not to do the wrong thing,” the Bloomberg Opinion contributor said. Since the March meeting, Trump announced a punishing set of tariff increases on major trading partners. While all but those on China are on pause until early July, tit-for-tat escalation with Beijing has left those rates at levels widely seen as amounting to an effective embargo. “If the tariffs are ultimately put in place at those levels, which we don’t know, then we won’t see further progress toward our goals,” Powell said in answering questions at his press briefing after the policy decision. If that’s the way the import duties shake out, he said, then “at least for the next, let’s say, year, we would not be making progress toward” the 2% inflation and full-employment goals.  Fed Chair Jerome Powell during the news conference following the Federal Open Market Committee meeting on May 7, 2025. Photographer: Tierney L. Cross/Bloomberg The White House has repeatedly said that trade deals are likely soon, and the first round of talks with China is set to kick off Saturday, with Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer leading the charge. It’s not just Fed policymakers monitoring the outcome of those negotiations, the Fed chief also said. “If you talk to businesses or market participants or forecasters, everyone is just waiting to see how developments play out.” “There are cases in which it would be appropriate for us to cut rates this year. There are cases in which it wouldn’t,” Powell said. “I couldn’t confidently say that I know what the appropriate path will be.” He also said that dealing with supply-chain disruptions is up to the Trump administration — “this is their mandate, not ours.” “When we watch the Fed, they have much less of the ‘masters of the universe’ vibe going right now,” said Claudia Sahm, chief economist at New Century Advisors, who previously worked at the Fed. The central bank “is very much at the whim of policies coming out of the White House. They’re reactive.” Don’t Miss the Latest Trumponomics Podcast | Host Stephanie Flanders, Bloomberg’s head of government and economics, speak with historian and commentator Niall Ferguson and CNN host and author Fareed Zakaria at the Milken Global Conference about Trump’s economic worldview and how it stacks up against reality. They both argue that the US hasn’t hollowed itself out over the past three decades, as the US president’s rhetoric suggests. Listen here and subscribe on Apple, Spotify, or wherever you get your podcasts. The Best of Bloomberg Economics | - The Trump administration plans to rescind some Biden-era AI chip curbs as part of a broader effort to revise global semiconductor trade restrictions that have drawn strong opposition from major tech companies and foreign governments.
- India has more to lose economically from escalating tensions with Pakistan.
- German industrial production rose in March, a period in which looming trade barriers by the US administration probably boosted foreign demand.
- New Zealand’s finance minister asked the central bank to explain why it planned to keep rates at a restrictive level in the week prior to the sudden resignation of Governor Adrian Orr.
- Turkey’s monetary chief defended the central bank’s decision to sell tens of billions of dollars of reserves to stabilize the lira in recent weeks.
On the eve of the first round of US-China trade talks, Citigroup economists ventured to map out how de-escalation from steep tariff rates might unfold, saying that there’s a “shared incentive” to retreat from the current lose-lose situation. There are effectively three components of the US tariffs, Xiangrong Yu and Xinyu Ji wrote in a note Wednesday — the 20% rates tied to fentanyl concerns, the 34% “reciprocal” levy announced on April 2, and “escalatory” duties that added 125% after China’s retaliation. That’s all on top of a starting point of an effective 11% tariff as of last year, they wrote. The fentanyl and escalatory tariffs “could be easy parts, and we see a good chance of both being rolled back,” perhaps in the next six months, the Citigroup duo wrote. Then would come “the hard part,” with some level of “reciprocal” tariff remaining and some exemption for US imports highly dependent on China. “In our view, a sustainable equilibrium tariff rate could be in the 20-25% range,” but that’s unlikely for the next 12 months. | 
