No matter what the Federal Reserve does, Powell is a loser

Against the backdrop of the Federal Reserve's dual mandate—maximum employment and low inflation—being threatened by the tariff policies of the Trump administration, Powell is facing an almost intractable "lose-lose" situation: regardless of which monetary path the Fed under his leadership chooses—tightening, easing, or maintaining the status quo—it seems destined to be labeled as "too late."

Many economists believe that in the face of this "lose-lose" situation, Powell can only remain inactive at this moment. Dan North, a senior economist at Allianz Trade North America, stated:

"The completely correct approach is to do nothing, because whatever happens, it will be a mistake."

It is worth mentioning that considering the historical "lag" nature of the Federal Reserve, U.S. media ironically commented:

"If the 'too late' label that Trump has placed on Powell becomes a reality, he will not be alone...

After all, the indecision of Federal Reserve leaders when adjusting interest rates has become a historical norm."

Historically, Federal Reserve leaders have often been criticized for their indecision and lagging actions in interest rate adjustments.

Whether it was Arthur Burns in the 1970s failing to tighten monetary policy in time as the specter of stagflation emerged; or Alan Greenspan's slow response to the internet bubble in the 1990s; or Ben Bernanke downplaying the subprime mortgage crisis as "manageable" just before the 2008 financial tsunami and failing to preemptively cut interest rates.

These cases point to a common pattern: in the absence of overwhelming data proving the necessity of action, the Federal Reserve tends to wait and see. Dan North summarized:

"Looking back at the history since the 1970s, the Federal Reserve has almost always been late at the two turning points of the policy cycle...

They tend to wait for certainty, but when they finally act, it is often too late, and the economy has mostly slipped into recession."

Policy Dilemma: The Growth and Inflation Quandary Under Tariff Impact

Currently, Powell's situation is particularly tricky. The tariff stick wielded by the Trump administration puts downward pressure on economic growth while posing upward risks to inflation, which makes the Fed's policy space exceptionally narrow; any single-direction policy adjustment may lead to losses on both sides.

Dan North's analysis hits the nail on the head:

"Powell is in a lose-lose situation, with threats to the Fed's responsibilities on both sides, which is why the completely correct thing for him to do right now is to do nothing, because whatever happens, it will be a mistake."

In his view, faced with the high uncertainty of the current policy mix and the lack of clearer economic signals, Powell has almost no better option than to "remain inactive."

Recently, Trump has been continuously urging the Federal Reserve to cut interest rates, insisting that inflation has been defeated.

After the Fed decided to keep interest rates unchanged, he posted on his social platform Truth: "'Too late' Jerome Powell is a fool, he knows nothing." He claimed "there is almost no inflation"—which was indeed the case in March when the Fed's preferred inflation indicator showed no change for that month

However, the impact of tariff policies on the real economy has yet to manifest, after all, these policies have only been implemented for a little over a month.

Currently, although recent economic data has not shown a surge in prices or a significant slowdown in economic activity, surveys indicate that concerns in the manufacturing and service sectors are intensifying, consumer sentiment is deteriorating, and nearly 90% of S&P 500 companies expressed concerns about the impact of tariffs during their quarterly earnings call.

However, Powell reiterated his confidence in the "solid" U.S. economy and the labor market "meeting maximum employment goals" at this week's press conference, clearly rejecting the option of "preemptive rate cuts."

Krishna Guha, head of global policy and central bank strategy at Evercore ISI, commented that among Powell's two reasons for not rushing to act, "the idea that 'waiting has no real cost' is something he may regret in the future," while "the uncertainty about what the right course of action is" is more persuasive.

Lagging Signals: Labor Market Indicators

There is an old saying on Wall Street: "The labor market is the last to know when a recession is coming." History has repeatedly shown that job losses typically occur only after an economic downturn begins.

Market analysts believe that if the Federal Reserve uses the performance of the labor market as a key guide for its policy adjustments, then its decisions are almost destined to lag behind the actual turning points of the economic cycle.

"If they wait for the labor market to confirm whether they should cut rates, then by definition, they are already too late," said Joseph LaVorgna, chief economist at SMBC Nikko Securities and a senior economic advisor during Trump's first term. "I think the Fed is not forward-looking enough."

Powell himself has a history of "too late" actions. When inflation began to surge in 2021, the Federal Reserve was reluctant to raise interest rates, labeling inflation as "transitory." This judgment later troubled them, forcing the Fed to implement a series of historically aggressive rate hikes, yet inflation has still not been brought back to the central bank's 2% target.

LaVorgna believes that the Fed is constrained by its own history and will miss the optimal timing again, as policymakers attempt to unsuccessfully predict the impact of tariffs. He summarized:

"We will only know if it is too late when it is too late...

Economic history and current market pricing indicate that the risk of the Fed acting too late is real."