U.S. Federal Reserve Chair Jerome Powell speaks at a press conference, following a two-day meeting of the Federal Open Market Committee on interest rate policy, in Washington, D.C., U.S., March 19, 2025. REUTERS/Nathan Howard/File Photo
Trump’s Tariff Pause Provides Temporary Relief but Leaves Economic Risks Unchanged
April 10, 2025 — WASHINGTON — President Donald Trump’s recent decision to pause a portion of his proposed import tariffs has temporarily eased market tensions. However, key economic risks persist, with policymakers and analysts warning that uncertainty around trade policy continues to threaten U.S. economic stability, raising the potential for both a slowdown in growth and renewed inflation pressures.
Partial Suspension Leaves Core Tariffs in Place
While the 90-day suspension affects tariffs on a selection of countries, the administration has maintained significant import duties on major trade partners such as China, Mexico, and Canada. These nations account for a substantial share of U.S. imports. The lingering tariffs and uncertainty surrounding future trade decisions have left businesses and consumers navigating an unsettled economic landscape.
The continued ambiguity is especially concerning to the U.S. Federal Reserve, which remains cautious about the potential consequences on consumer spending, corporate investment, and inflation expectations.
Federal Reserve Expresses Ongoing Concern
In remarks following Trump’s announcement, Federal Reserve officials did not directly reference the pause but reiterated their concerns over the broader implications of the existing tariffs.
Jeff Schmid, President of the Federal Reserve Bank of Kansas City, noted that risks to both inflation and employment had become more pronounced. “It appears as though we have seen a marked increase in the upside risks around inflation along with elevated downside risks to the outlook for employment and growth,” Schmid stated. He emphasized the importance of maintaining the Fed’s credibility in managing inflation expectations.
Similarly, Dallas Fed President Lorie Logan warned that tariff-related price increases could complicate the Fed’s dual mandate of price stability and full employment. “To sustainably achieve both of our dual-mandate goals, it will be important to keep any tariff-related price increases from fostering more persistent inflation,” she said.
Market Reaction and Financial Conditions
Although consumer prices dipped modestly in March—primarily due to declining energy costs—analysts view this as a temporary reprieve, anticipating renewed price pressures from tariffs.
Financial markets showed muted reaction to the tariff pause. Equities reversed some of Wednesday’s gains, and credit markets continued to exhibit signs of stress. The premium on borrowing for lower-rated companies narrowed only slightly, while yields on high-grade corporate bonds rose further.
According to market data, investment-grade corporate bond issuance has slowed sharply in April, with only $10 billion raised so far—down from $190 billion in March. Lower-rated companies have largely been absent from the market, with just one issuance recorded this month. This contraction signals potential constraints on future investment and may indicate growing financial fragility among highly indebted firms.
Fed Monitoring Market Stability Closely
Federal Reserve officials have acknowledged the tightening of financial conditions. St. Louis Fed President Alberto Musalem observed that financing conditions had “tightened appreciably,” suggesting this trend could become a headwind for economic growth if sustained.
Meanwhile, recent auctions of U.S. Treasury 10-year and 30-year bonds were well received, with yields declining modestly. Nevertheless, some analysts have raised concerns about whether the U.S. dollar may be losing its traditional role as a global safe-haven asset, following the jump in Treasury yields.
Despite this, Fed officials stated that they currently see no need for extraordinary interventions. However, they remain vigilant.
“As we go through this cycle of disruption, we do have an obligation as a central bank to really keep our eye on liquidity,” Schmid said. “We are literally by the minute watching those markets… It looks to me like the market is adjusting pretty well for the gyrations that have been in the market the last couple of weeks. We are there if needed.”
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