When Doing Nothing Is Doing Harm: Powell’s Misstep on Tariffs and the Neutral Rate

When Doing Nothing Is Doing Harm: Powell’s Misstep on Tariffs and the Neutral Rate

When asked last month at the European Central Bank’s annual forum in Portugal whether the Fed would have cut interest rates if not for the tariffs, Fed Chair Jerome Powell affirmed that was indeed the case. He explained that the Fed chose to pause its rate-cutting cycle in light of the tariffs’ magnitude, opting to wait and see how the trade-policy uncertainty would affect the economy before adjusting policy further. While such an approach may s…