The U.S. economy is mostly in good shape but that isn’t saving Federal Reserve chair Jerome Powell from a spell of angst. As the Fed considers its next moves during a two-day meeting this week, most economic data looks solid: Inflation has been steadily fading, while the unemployment rate is still a historically low 4.2%. Yet President Donald Trump’s widespread tariffs may push inflation higher in the coming months, while also possibly slowing growth. With the outlook uncertain, Fed policymakers are expected to keep their key interest rate unchanged on Wednesday at about 4.4%. Officials will also release a set of quarterly economic projections that are expected to show inflation will accelerate later this year, while unemployment my also tick up a bit. The projections may also signal that the Fed will cut its key rate twice later this year, economists say. The prospect of higher inflation would typically lead the Fed to keep rates unchanged or even raise them, while rising unemployment would usually lead the Fed to cut its key rate. With the economy potentially pulling in both directions, Powell and other Fed officials have underscored in recent remarks that they are prepared to wait for clearer signals on which way to move. The Fed is in “an uncomfortable purgatory,” said Diane Swonk, chief economist at accounting giant KPMG. “Without the threat of tariffs, we would be seeing the Fed cut. That’s not where we’re at because of the uncertainty and the threat and the effects (of tariffs) that we don’t know yet.” The Trump White House has sharply ramped up the pressure on Powell to reduce borrowing costs, with Trump himself calling the Fed chair a “numbskull” for not cutting and other officials, including Vice President JD Vance and Commerce Secretary Howard Lutnick, also calling for a rate reduction. When the Fed reduces its key short-term rate, it often — though not always — leads to lower costs for consumer and business borrowing, including for mortgages, auto loans, and credit cards. Yet financial markets also influence the level of longer-term rates and can keep them elevated even if the Fed reduces the shorter-term rate it controls. For example, if investors worry that inflation will remain elevated, they can demand higher interest rates on longer-term Treasury securities, which influence other borrowing costs. Even though Trump has said the economy is doing well, he has also argued that a rate cut would cause the economy to take off “like a rocket.” But Trump has also highlighted another concern: If the Fed doesn’t cut rates, the federal government will have to pay more interest on its huge budget deficits, which are projected to grow even larger under the White House’s proposed tax and budget legislation currently being considered by the Senate. “We’re going to spend $600 billion a year, $600 billion because of one numbskull that sits here (and says), ‘I don’t see enough reason to cut the rates now,'” Trump said last week. Pushing the Fed to cut rates simply to save the government on its interest payments typically raises alarms among economists, because it would threaten the Fed’s congressional mandate to focus on stable prices and maximum employment. Yet the markets haven’t reacted much to Trump’s recent attacks on the Fed, now that the Supreme Court, in a […]