Fed Sees Strong Economy Despite Uncertainty

Rates decline slightly after FOMC meeting. Treasury yields fell ~0-4 bps across the long end of the curve today, with the 2-year ending at ~3.78% and the 10-year closing at ~4.28%, after the Fed announced it would hold rates steady and offered a relatively positive view of the economy despite mounting trade uncertainty. Powell’s comments offset remarks from President Trump today that he won’t rollback tariffs on China to accelerate trade talks. Equities rebounded following the Fed meeting, with major equity indices reversing intraday losses to close ~0.20% – 0.70% higher.

Fed sees elevated risks, but Powell says the economy is holding up. As expected, the Fed held rates steady at 4.25% – 4.50%, but more importantly, the Fed’s statement and Powell’s commentary included a somewhat positive view of the economy despite recent trade disruptions. The updated FOMC statement noted the impact of higher imports on 1Q25 GDP figures but that overall “economy activity has continued to expand at a solid pace.” Still, the statement noted that the FOMC “judges that the risks of higher unemployment and higher inflation have risen.” Powell expanded on this sentiment during his press conference, when he said that despite uncertainty, “…the economy is still in a solid position,” but largely echoed the statement’s language when saying that risks to higher unemployment and inflation have risen. On trade, he said, “If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment.” He added, however, that the tariff-related impact on inflation is uncertain, and could be temporary or longer lasting. Looking ahead, Powell said pressure from the President to cut rates won’t influence Fed policy, and that the Fed will “wait and see how things evolve” before adjusting its stance. The full FOMC statement with a side-by-side comparison from the last meeting can be read here.

President Trump says he won’t lower China tariffs. Beijing has said repeatedly during recent weeks that it will only engage in substantive trade talks if the U.S. rolls back recently imposed tariffs on China. Today, when asked by a reporter if he would consider pulling back on Chinese tariffs which now amount to 145%, President Trump said “no,” a sign that the road to a trade deal with China may be challenging. The latest development comes following weeks of back and forth between the two countries concerning the initiation of discussions, with President Trump repeatedly saying Xi Jinping had called him about trade, which the Chinese denied. Recently, Secretary Bessent admitted that no trade talks had occurred with China, but that the first are scheduled to occur tomorrow in Switzerland.