All of this strategic volatility—from tariffs to markets to monetary plumbing—was designed to corner the Federal Reserve into action. But Jerome Powell isn’t blinking.
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Speaking at the SABEW conference on Friday, the Fed Chair made it clear: there will be no knee-jerk reaction to the Trump tariff shock. While acknowledging that the new levies will drive inflation higher and weigh on growth, Powell emphasized that the central bank’s priority remains anchored inflation expectations—not cushioning market turbulence.
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“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said. “It feels like we don’t need to be in a hurry.”
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Markets, hoping for a rate cut lifeline, were disappointed. The probability of a May cut plunged from 50% to 30% following Powell’s remarks. Stocks sold off, with the S&P 500 capping its worst week since the COVID lockdowns. Treasury yields, meanwhile, plunged, a classic recession signal amplified by collapsing equity risk appetite.
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On April 3, the GDPNow model from the Atlanta Fed slashed its Q1 2025 U.S. GDP forecast to -2.8%, a sharp reversal that confirms the hit to real economic activity is already underway.
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More worrying still: one of the Fed’s preferred recession indicators—the 3-month/18-month forward rate spread—just posted its sharpest one-day deterioration since 2008. It now sits at -113bps, firmly in hard-landing territory.
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JPMorgan raised its U.S. recession probability to 60%, citing the compound drag from reciprocal tariffs. Goldman economists estimate that Trump’s tariff package will raise the effective U.S. rate from 3% to 21%—a $500B tax shock on the consumption side that will weigh heavily on both GDP and corporate earnings.
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Consensus still expects S&P 500 earnings to grow 6% in Q1. But forward revisions haven’t yet priced in the tariff drag. Goldman’s macro team warns that every 100bps drop in GDP clips 3–4% off EPS, while a 5pp rise in tariffs reduces forecasts by 1–2%. The street is flying blind.
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Powell’s stance was deliberate: the Fed won’t move unless inflation subsides or the labor market cracks. But with prices rising and growth contracting, the Fed may soon face a brutal trade-off—tightening into a downturn, or cutting into a supply shock.
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Either way, the soft landing narrative is gone for now.

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