Federal Reserve’s future policy path ‘highly uncertain’ as Powell downplays forecasts on heels of Trump unknowns

The Federal Reserve continued to signal it will cut interest rates two more times this year, with Fed Chair Jerome Powell adopting a perceived dovish stance, a pleasant surprise for investors who came into Wednesday’s policy decision with heightened fears over “stagflation” and the possibility of a US recession.

“It’s a clearing event,” Dennis DeBusschere, president of 22V Research, told Yahoo Finance following the decision. “You didn’t get a Fed that was going to accelerate the downside in markets.”

Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments

One big reason stemmed from the Fed’s “base case” that tariff-induced inflation will be “transitory” and have a short-term “one-off” effect on price growth. This was reflected in the central bank’s projections, which forecast year-end PCE inflation rising to 2.7% before reaching its 2% target by 2027 — “a relief to investors” who had been bracing for stickier prices, according to DeBusschere.

But some experts warn that “transitory” inflation remains an unrealistic expectation — and that the projections for two rate cuts this year could unravel as the Trump administration continues to flip-flop on trade policy. Powell himself said “there is a level of inertia” to stay consistent with prior forecasts until greater clarity emerges.

“Uncertainty was a highlight of the statement,” Rick Rieder, chief investment officer of global fixed income at BlackRock, wrote in response to Wednesday’s decision. “Like market participants, the Fed is at a highly uncertain point, and it is in need of time and data to determine the next course of action.”

Both consumer and producer inflation showed a deceleration in price growth over the month of February. But details under the surface pointed to a potential stalling out

in reaching the Fed’s 2% target, with tariffs serving as the greatest threat to Powell’s “transitionary” base case.

There are also concerns the Fed may cut rates because of a weakening labor market and slowing economic growth — a move that wouldn’t be cheered by investors.

“Everybody wants two cuts, three cuts, four cuts. You don’t want any cuts. You want earnings growth. You want a strong economy,” Ken Mahoney, CEO of Mahoney Asset Management, told Yahoo Finance on Thursday. “Be careful what you wish for.”

Despite a slightly more hawkish tilt from the central bank, with more FOMC members forecasting interest rates to either hold steady or come down by just 0.25% instead of the consensus 0.50%, traders still boosted their own expectations of where interest rates could end the year.