Evelyn Reynolds

Fed Vice Chair Philip Jefferson said Tuesday the central bank should be careful how it adjusts interest rates amid an uncertain policy environment.
“I do not think we need to be in a hurry to change our stance,” he said.

Philip Jefferson speaks during a Senate Banking, Housing, and Urban Affairs Committee confirmation hearing in Washington, D.C., U.S., on Feb. 3, 2022. The U.S. Senate on Wednesday voted overwhelmingly to confirm Philip Jefferson, an economist and Davidson College’s dean of faculty, to the Federal Reserve Board.
Ken Cedeno | Bloomberg | Getty Images

EASTON, Pa. — Federal Reserve Vice Chair Philip Jefferson said Tuesday the central bank should be careful how it adjusts interest rates amid an uncertain policy environment.
In broad terms, the Fed governor said he sees the economy strong with inflation easing back on a “bumpy” road to the central bank’s 2% goal and a labor market in a “solid position.”

However, Jefferson echoed recent statements from other officials that it’s in the Fed’s best interest to move slowly as it evaluates evolving conditions.
“As long as the economy and labor market remain strong, I see it as appropriate for the [Federal Open Market] Committee to be cautious in making further adjustments,” he said in remarks for a speech at Lafayette College.
“Over the medium term, I continue to see a gradual reduction in the level of monetary policy restraint placed on the economy as we move toward a more neutral stance as the most likely outcome,” Jefferson added. “That said, I do not think we need to be in a hurry to change our stance.”
The remarks come less than a week after the FOMC voted to hold its policy rate steady in a range between 4.25% to 4.5%, a decision with which Jefferson concurred. At the previous three meetings, the committee had cut the federal funds rate by a total 1 percentage point after hiking it rapidly to combat a surge in inflation.
Fed officials have refrained from commenting directly on policy clashes in Washington, but have expressed a level of trepidation about trying to prejudge events.

Principal among the current level of uncertainty is the impact that tariff negotiations between the U.S. and its primary trading partners will have. President Donald Trump has paused on duties against products from Canada and Mexico, but is locked in a tense battle with China.
“There is always a great deal of uncertainty around any economic forecast, and currently we face additional uncertainties about the exact shape of government policies, as well as their economic implications,” Jefferson said.
Over the past year, the Fed’s favored inflation gauge — the personal consumption expenditures price index — has edged lower. The rate increased 2.6% in December on a year-over-year basis, well off its peak but still ahead of the central bank’s 2% goal.
Jefferson said he expects inflation to continue to move lower, but hedged his outlook.
“In the current environment, I attach a high degree of uncertainty to my projections,” he said.
The policymaker added that he “could envision a range of scenarios for future policy” where “we can maintain policy restraint for longer” if inflation stays elevated, or one where the Fed could ease more if the labor market weakens. More

A complicated scenario is emerging surrounding the tariff drama that could put the Fed in an uncomfortable Catch-22, unsure whether to use its policy levers to tame inflation or boost growth.
When Trump launched tariffs during his first term, the Fed was raising rates, and the result, indirectly perhaps, was a manufacturing recession, though one that did not spread to the broader economy.
This time around, the targeted tariffs that Trump had previously used have been replaced by the threat of blanket duties that could change the monetary policy calculus.

Flags outside the Fairmont Royal York in downtown Toronto, Feb. 3, 2025. 
Andrew Francis Wallace | Toronto Star | Getty Images

A complicated scenario is emerging surrounding the tariff drama that could put the Federal Reserve in an uncomfortable Catch-22, unsure whether to use its policy levers to tame inflation or boost growth.
With many bridges to cross yet in President Donald Trump’s efforts to use the levies as a tool both of foreign and economic policy, the central bank will have a delicate balance to strike.

Many economists expect the tariffs both to raise prices and shave the pace of gross domestic product, with the main question being a matter of degree on the extent of any need for Fed policy adjustments.
“Maybe you get that price shock and maybe it’s offset by the dollar going up vs. the currencies of the countries subject to tariffs. But just really the long-term effects tend to be negative for growth,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “You put that combination together and it puts the Fed in a real bind.”
There are a lot of moving parts happening in the dispute Trump is having with China, Canada and Mexico, the three leading U.S. trade partners. As things stand now, threatened duties against Canada and Mexico have been postponed as the president negotiates with leaders of those governments. But the situation with China has quickly escalated into a tit-for-tat conflict that has markets on edge.
A different history
That tariffs cause higher prices is practically an article of faith for economists, though the historical record provides less certainty. The Smoot-Hawley tariffs in 1930, for instance, actually proved to be deflationary as they helped worsen the Great Depression.
When Trump launched tariffs in his first term, inflation was low and the Fed was raising rates as it sought a “neutral” level. A manufacturing recession ensued in 2019, though one that did not spread to the broader economy.

This time around, the targeted tariffs that Trump had previously used have been replaced by the threat of blanket duties that could change the monetary policy calculus. Schwab projects that the tariffs at full strength could cut 1.2% off GDP growth while adding 0.7% to core inflation, pushing the latter measure above 3% in the months ahead.

Broader tariffs “have both more price impact and more growth impact down the road,” Jones said. “So I could see [the Fed] staying on hold longer, with the threat of tariffs hanging over the market and maybe seeing these price increases and then having to pivot to easing later in the year, or next year, or [whenever] that growth impact shows up.”
“But they’re definitely in a tough spot right now, because it’s a two-sided coin,” she added.
Indeed, markets largely expect the Fed to hold tight for at least the next several months as policymakers observe the reality against the rhetoric on tariffs, along with looking for the impact from a full percentage point of interest rate cuts in the final four months of 2024.
If any of the parties blink on tariffs, or if they are less inflationary than thought, the Fed can go back to focusing on the employment side of its dual mandate and pivot away from inflation concerns.
“They’re very comfortably on hold right now, and the back and forth on tariffs won’t impact that, especially since we don’t even know what they’re going to look like,” said Eric Winograd, director of developed market research at AllianceBernstein. “You’re talking multiple months before this will meaningfully impact their thinking.”
‘A lot of uncertainty’
Winograd is among those who think that while tariffs could result in one-off boosts to some prices, they will not generate the kind of underlying inflation that Fed officials look at when making policy.
That matches some of the recent statements from Fed officials, who say that tariffs are likely only to affect their decision-making if they generate a full-blown trade war or somehow contribute to more fundamental supply or demand drivers.
“There’s a lot of uncertainty about how policies unfold, and without knowing what actual policy will be implemented, it’s just really not possible to be too precise about what the likely impacts are going to be,” Boston Fed President Susan Collins told CNBC in an interview on Monday. From a policy perspective, Collins said her current stance is to “be patient, careful, and there’s no urgency for making additional adjustments.”
Market pricing is still pointing to a likely Fed rate cut at the June meeting, then possibly one more quarter percentage point reduction in December. The Fed last week opted to hold the federal funds rate steady in a range between 4.25%-4.5%.
Winograd said he sees a scenario where the Fed can cut two or three times this year, though not starting until later as the tariff situation plays out.
“Given how insulated the U.S. economy generally is from trade frictions, I don’t think it moves the Fed needle very much,” Winograd said. “The market is presuming too mechanical of a reaction function from the Fed where if they see inflation go up, they have to respond to it, which simply isn’t true.” More

Available positions tumbled to 7.6 million, the lowest since September, and below the Dow Jones estimate for 8 million.
Though the JOLTS report runs a month behind other jobs data, the Federal Reserve watches it closely for signs of a slack or tight labor market.

Job openings slid in December while hiring, voluntary quits and layoffs held steady, the Labor Department reported Tuesday.
Available positions tumbled to 7.6 million, the lowest since September, and below the Dow Jones estimate for 8 million, the Bureau of Labor Statistics said in its monthly Job Openings and Labor Turnover Survey. The decline left the ratio of open jobs to available workers at 1.1 to 1.

Though the report runs a month behind other jobs data, the Federal Reserve watches it closely for signs of a slack or tight labor market.
While the net gain in nonfarm payrolls picked up in the month by 256,000, the level of openings fell by 556,000. As a share of the labor force, openings declined to 4.5%, or 0.4 percentage point below November.
Professional and business services saw a drop of 225,000, while private education and health services declined by 194,000, and financial activities decreased by 166,000.
Major stock market averages rose following the news while Treasury yields were mixed as the report showed a relatively healthy labor market as 2024 came to a close.
Layoffs totaled 1.77 million for the month, down just 29,000, while hires nudged up to 5.46 million and quits also saw a small gain to near 3.2 million. Total separations also moved little, at 5.27 million.

The report comes just a few days ahead of the BLS release of the nonfarm payrolls count for January. That is expected to show an addition of 169,000 jobs, with the unemployment rate holding steady at 4.1%.
Fed officials in recent days have expressed caution about the future path of monetary policy as they watch both the impact of a series of interest rate cuts last year as well as fiscal policy involving potential tariffs against the largest U.S. trading partners. The central bank last week opted to hold its benchmark borrowing rate steady at 4.25% to 4.50%, and markets don’t expect further reductions until at least June.

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China’s Finance Ministry said Tuesday it will impose additional tariffs of 15% on coal and liquefied natural gas imports from the U.S., starting Feb. 10.
China will also levy 10% higher duties on American crude oil, farm equipment, and certain cars and trucks, as well as enacting export controls on certain products related to critical minerals.

China unveiled a series of retaliatory measures against the U.S. on Tuesday, shortly after U.S. tariffs on Chinese goods took effect, raising concerns of a broader trade war between the world’s two largest economies.
China’s Finance Ministry said Tuesday it will impose additional tariffs of 15% on coal and liquefied natural gas imports from the U.S. and 10% higher duties on American crude oil, agricultural machinery and certain cars, starting Feb. 10.

China reiterated that the imposition of additional levies of 10% by the U.S. “seriously violates the rules of the World Trade Organization … destructs the normal bilateral economic and trade activities” according to a CNBC translation of the statement in Chinese.
In a separate statement Tuesday, Chinese Commerce Ministry and customs officials announced to impose export controls on a range of items and technologies related to certain critical minerals, including tungsten, tellurium, ruthenium, molybdenum and ruthenium.
China’s tariff announcement is more of a “symbolic move for now,” said Louise Loo, China lead economist at Oxford Economics, who estimates the additional duties could raise the effective tariff rate on U.S. imports into China by close to 2 percentage points.
Loo, however, cautioned that a second U.S.-China trade war was “clearly in the early stage” and sees “a very high likelihood” of further rounds of tariffs from the two countries.

Chinese offshore yuan was little changed against the U.S. dollar, following the announcements. The mainland’s markets, which have remained closed due to the weeklong Lunar New Year holiday, will resume trading Wednesday.

China’s State Administration of Market Regulation also said it has decided to initiate an investigation into Alphabet’s Google as the American technology giant was suspected of violating the country’s anti-monopoly law.
Google pulled its internet and search engine services in China in 2010, but still has some operations focused on Chinese businesses looking to advertise on Google platforms abroad.
“These moves are warnings that China intends to harm US interests if need be but still give China the option to back down,” Julian Evans-Pritchard, head of China economics at Capital Economics, said in a note.
Pritchard acknowledged that the tariffs proposed by China could be postponed or canceled before they come into effect next Monday, and the Google investigation could end without any penalties.
U.S. President Donald Trump on Monday agreed to a 30-day pause on the implementation of the planned 25% tariffs on imports from Canada and Mexico, as the two countries agreed to take steps to prevent the illicit drug trafficking of fentanyl into the U.S.
China, however, did not get any such reprieve.
“The overarching geo-economic dimensions to U.S.-China trade means that resolution will be far more fraught than is the case with Mexico and Canada,” said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho Bank.

Swift retaliation

As Trump started his second term, he ordered his administration to investigate Beijing’s compliance with a trade deal struck during his first presidency in 2020. The final result of the assessment will be delivered to Trump by April 1, potentially setting the stage for further tariff actions, economists said.

White House press secretary Karoline Leavitt reportedly said Monday that Trump and Chinese president Xi Jinping could talk “in the next couple of days.”
Trump on Saturday signed into law the long-threatened 10% tariffs against China on top of the existing tariffs of up to 25% on Chinese goods levied during his first presidency.
The additional duties would reduce China’s real gross domestic product growth by 50 basis points this year, economists at Goldman Sachs said in a report Monday, reinforcing calls for stronger domestic stimulus measures to offset impacts from the rising tariffs.
The investment bank expects China’s real GDP growth to slow to 4.5% this year and domestic consumer inflation to rise just 0.4% due to weak demand and a prolonged real estate crisis. More