It’s been an encouraging week for economic data, with inflation showing signs of moderation and consumer sentiment rebounding for the first time this year. The labor market remains broadly stable, with the unemployment rate holding at a healthy 4.2%, although a recent uptick in continuing jobless claims suggests some signs of cooling.
Altogether, the backdrop appears supportive of the Federal Reserve’s path toward easing. But Wall Street watchers say policymakers may need more convincing before delivering any cuts.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
“We don’t know really how the second half of the year is going to play out,” Loretta Mester, former Cleveland Fed president, told Yahoo Finance on Thursday.
Mester added that although the “hard” economic data, like the recent labor and inflation reports, have been encouraging, “the real question is what is going to happen in the second half of the year and [if] those trends continue. That’s where the high level of uncertainty still is with us.”
The uncertainty centers on the scope and scale of President Trump’s tariffs in the aftermath of his April “Liberation Day” announcements, which sent shockwaves through markets and businesses.
Since then, many of those “reciprocal” tariffs have been paused, but the 10% baseline duties for most countries remain in place. The president is set to notify US trading partners of their respective unilateral tariff rates in the coming weeks.
Read more: The latest news and updates on Trump’s tariffs
In the meantime, Mexico and Canada continue to face fentanyl-related tariffs, and industry-specific tariffs on steel, aluminum, and autos remain unchanged.
Earlier this week, the US and China agreed to a framework and implementation plan aimed at easing tariff and trade tensions. President Trump signaled his approval, saying the deal was “done,” pending final sign-off from him and Chinese President Xi Jinping. As part of the agreement, Trump said the US would impose a total of 55% tariffs on Chinese goods.
Many market observers said the deal was sparse on details. Outside analysts like the budget lab at Yale have calculated the effective tariff rate on China overall to be around 33%.
“The Fed is on hold until we get a little more clarity about not only the magnitude of the tariffs and the breadth of the tariffs, but what effect they all have on inflation and what effect the tariffs and other policies, including the budget bill, will have on growth and employment,” Mester said.
