A U.S.–China agreement to roll back some tariffs removed a major drag on growth, prompting Wall Street economists to trim recession odds.
April consumer prices rose just 2.3 percent from a year earlier, the smallest gain in more than four years and a relief for policymakers.
Market Repricing
Futures traders now expect only two quarter-point rate cuts this year, likely starting in September instead of July.
Hopes for aggressive early easing have faded as short-term borrowing costs remain anchored in a 4.25 percent to 4.50 percent corridor set last December.
Forecasters Shift Views
JP Morgan now sees the probability of recession falling below 50 percent, while Barclays has removed a downturn from its baseline outlook altogether.
Although goods prices could climb once tariff reductions expire, the latest data give the central bank breathing room.
Voices From the Fed
“We’re in a good place,” New York Fed President John Williams said, adding, “let’s collect more data, information about what’s happening with trade policy.”
Governor Adriana Kugler echoed that sentiment, noting the robust economy “gives us time” to make further progress on inflation before any move.
Chair Jerome Powell told reporters, “despite heightened uncertainty, the economy is still in a solid position,” and stressed the Fed is “well positioned to respond in a timely way.”
Tariff-Driven Trade-Offs
President Donald Trump’s high import levies remain the main source of uncertainty, threatening to push prices up while damping growth.
Fed Governor Michael Barr warned that simultaneous rises in inflation and unemployment would put policymakers in a “difficult position.”
Inflation Dynamics
Core consumer prices, which strip out food and energy, advanced 2.8 percent year on year, underscoring sticky services costs even as energy prices fell.
Items most exposed to tariffs, such as apparel and vehicles, were flat or cheaper, blunting fears of an immediate pass-through.
Outlook for Policy
Economist Gregory Daco at EY now anticipates two cuts rather than three, beginning in September, given lingering tariff uncertainty.
Analysts broadly agree the Fed will wait for clearer signs that cooling prices can be sustained before dialing back policy.
Until then, Treasury yields may stay range-bound, while equities could extend gains if inflation continues easing without eroding corporate earnings.