Michael Gapin

I think that's hard to deny that.

And they said the labor market is showing signs of stabilization.

So I think what that means is cuts shift to inflation-based cuts.

In other words, when it's clear, if they're right, that tariffs only inject temporary upward pressure on inflation.

And once that pass-through is completed, inflation starts coming back down.

then the Fed can normalize its policy stance further.

So I would describe it as a shift from labor market-based cuts to an outlook of inflation-based cuts.

So what would mean the Fed doesn't cut is that disinflation doesn't happen.

Or if inflation firms further and the labor market tightens, then maybe the Fed has to even consider

rate hikes.

But I think Powell made it pretty clear.

He said nobody is considering, at least it's not in anyone's baseline case, that there should be rate hikes.

So I think in some ways the Fed is still kind of cutting off the upper end of the policy rate distribution and saying we're either on hold for a prolonged period or inflation will decelerate and we can move our policy rate lower.

As you pointed out, the administration would clearly prefer lower interest rates.

So what they want may come later.

But I think the Fed sees the economy as warranting lower rates, but it may take more time to get there.

I would say with each passing month, they have greater confidence that inflation will be coming down later this year.

So the way that he's talking about it is, yes, there is clear evidence that tariffs are pushing goods prices higher.

Not meaningfully higher from the Fed's perspective, but certainly they're moving higher, and that's something to watch.

But there are other goods prices which are not as exposed to tariffs.