Uncertainty about inflation, the economy, and trade policy continue to blur the macro outlook, which in turn supports expectations that the Federal Reserve will leave interest rates unchanged at the next several policy meetings.

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Policy uncertainty has a ‘meaningful’ impact on the US economic outlook, said St. Louis Federal Reserve Bank president Alberto Musalem. “To the extent that the economy requires capital expenditure to continue to occur, that it requires hiring to continue to occur, and if all those decisions have been somewhat paused because of the uncertainty, it would affect the economic outlook I would expect.” An index tracking policy uncertainty has spiked recently, but is starting to fall, although it remains elevated vs. the pre-tariff period.

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