Why The Fed Faces An 'Almost Impossible Challenge'

Why The Fed Faces An 'Almost Impossible Challenge'

Yahoo Finance  Mon, June 16, 2025   Yahoo Finance Video

On Wednesday, the Federal Reserve will make its decision on interest rates. Advisors Capital Management partner portfolio manager JoAnne Feeney thinks the central bank faces a "really major and almost impossible challenge." Find out what it is in the video above at link below

Video Transcript:

Yeah, so there's there's a really major and almost impossible challenge for the Fed, right?

On the one hand, tariffs to the extent that they are initiated, and we've already had some, and particularly that increase on steel and aluminum which will percolate through lots of products that use steel and aluminum, are clearly going to increase prices.

And that could be a one-time quick increase, but more likely it's a sort of price increase that is taken up by different firms across the economy only gradually, and those percolate through, they propagate into the future.

So you do get an inflation uptick because of tariffs.

How big that is depends on how big the tariffs are and how long they last.

That increase in inflation should prompt the Fed to keep rates higher for longer.

On the other hand, tariffs also reduce economic activity.

They make things more expensive, not just for consumers, but for firms trying to build stuff, trying to expand even restaurants, buy lots of electronics.

They're going to be subject to potentially higher tariffs.

So that economic slowdown is something that would normally confront by reducing interest rates.

So the Fed needs to do two opposite things at the same time, which means they will do nothing, right?

Unless they figure out that one of those forces is considerably larger than the other

They definitely need to keep inflation expectations anchored.

Right now, we think that's the bigger of their two goals, so we think it's very unlikely that the Fed cuts rates anytime soon.

So even if they stay on hold, we will be receiving the summary of economic projections, those are quarterly projections that includes the dot plot where interest rates could be heading.

What are you expecting to see and how could that change from what we saw previously?

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