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There are many who feel that the latest trauma to the assorted markets will cause a recession. There are those who feel that the tariffs are inflationary. They are not mutually eexclusive.

The question is how will the Federal Reseerve respond (interest rate movement direction) if both happen simultaniously as their mission is to keep inflation low while maximizing employment?

Jeff

The question is how will the Federal Reseerve respond (interest rate movement direction) if both happen simultaniously as their mission is to keep inflation low while maximizing employment?

If I were Powell, I would do nothing. This is self-imposed pain that to some extent can be self-corrected. I don't see rates being the problem or the answer for that matter. It's all about the unpredictability and confidence. All bets off in 2027, when Trump can put one of his cronies in his place.

I don't think any of the conventional measures to influence the economy apply with a leader at the helm with an agenda that is not that which is best for the country.

IP

The question is how will the Federal Reseerve respond (interest rate movement direction) if both happen simultaniously as their mission is to keep inflation low while maximizing employment?

By far the first priority is stopping inflation from getting out of control. It has the ability top destroy the economy; we need only look back a couple years to see the havoc it caused a large segment of the populace.

Employment is vital, obviously, but with unbridled inflation it won’t matter because there won’t be any jobs anyway. And inflation, once started, is devilishly difficult to control. We got lucky that Carter/Volker brought it under control in the 1980s else it would have continued spiraling as every segment tries to “catch up” at the expense of every other. Of course it took a twin recession, one of them deep and severe, to accomplish the goal, so employment suffered anyway.

Given that tariffs are per se inflationary, I would expect the Fed to recalibrate and wait, wait, wait on making any moves; those expecting a rate cut anytime soon are playing a fool’s game.

"how will the Federal Reseerve respond (interest rate movement direction) if both happen simultaniously as their mission is to keep inflation low while maximizing employment?"

Fed Chair Jerome Powell answered this himself. His latest speech:

AI Overview

Jerome Powell's most recent speech, delivered on April 4, 2025, discussed the economic outlook and monetary policy. He noted that while the economy is still in a good place, with solid growth and a balanced labor market, inflation is running higher than the 2% target, according to a speech on the Federal Reserve Board website. The Fed remains focused on achieving the dual mandate of maximum employment and stable prices.
Powell also touched on the following points in his speech:

Uncertainty and Downside Risks:
He acknowledged that uncertainty is high and downside risks have risen.

Inflation Outlook:
While inflation has fallen significantly from its peak, progress toward the 2% target has slowed recently, says PBS.

Labor Market:
The labor market remains strong, with solid hiring and a balance between supply and demand.

Monetary Policy:
The Fed's current policy stance is well-positioned to deal with the risks and uncertainties, and they remain committed to supporting maximum employment and bringing inflation sustainably to their 2% target.

Trump Tariffs:
He also addressed the potential impact of tariffs on the economy, raising concerns that they could limit business investment and hiring

https://www.youtube.com/watch?v=rmm1OZBSarI

Powell's hero is Paul Volcker who tamed inflation by raising the fed funds rate after Fed Chair Arthur Burns caved to political pressure and cut, triggering inflation.

The Fed will hold unless inflation truly falls to their target (which hasn't happened) or the unemployment rate rises sharply (which hasn't happened). The Fed won't cut because of stock market volatility.

The markets are betting on cuts that won't happen. They have done this before, only to be disappointed.

Wendy

Powell's hero is Paul Volcker who tamed inflation by raising the fed funds rate after Fed Chair Arthur Burns caved to political pressure and cut, triggering inflation.

At some point in the next few (choose your time period here) this will be a flash point that goes up to the SCOTUS.

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