Unable to see their hands in front of their faces in some of the densest macro fog since the onset of the pandemic, the Fed kept rates on hold Wednesday, as expected.

There’s no sense dancing around the issue, although Jerome Powell will surely try: The elephant in the room’s Donald Trump and, more to the point, “Tariff Man,” Trump’s superhero alter ego.

Every day, Trump muses both idly and actively about making protectionism great again, and it’s mostly impossible to distinguish between the two, which is to say it’s difficult to discern what’s a threat and what’s a promise, what’s stream-of-consciousness rambling and what’s an actual policy proposal.

What we do know is that over-the-top tariffs applied indiscriminately are an inherently risky proposition, and thanks to newly-released transcripts from the Fed’s 2019 deliberations, we know the Committee harbored quite a lot of angst about Trump’s first trade war.

The word “tariff” — which Trump calls “the most beautiful word in the dictionary” — appears nearly two-dozen times in the transcript of the July 2019 FOMC meeting, at which the Fed cut rates under enormous pressure from The White House.

(Very) long story, (very) short, policymakers worried then that tariffs might negatively impact growth through a number of channels, and they’re worried now that a rekindled trade war might push up prices too, thereby imparting a stagflationary bias to a US economy that was otherwise headed for a soft landing.

Trump and his acolytes say that’s all nonsense — that tariffs work miracles, that whether or not it’s possible to leverage trade levies to resurrect America’s manufacturing base, it was globalization which gutted it in the first place and that were it not for hyper-globalized supply chains, the negative supply shock brought on by the pandemic might not have been so acute.

I don’t have all the answers. Or any at all on some days, and that puts me in “good” company: The Fed doesn’t have the answers either, and when you’re driving through the fog, it’s best to go slow or even just to stop and pull over, which is what the Committee did Wednesday.

As discussed in the January FOMC preview, the disinflation process appeared to stall in 2024, and I’d go so far as to argue underlying price growth’s likely to stay stuck right where it is (so, not 2%) for most of 2025.

Whether that means the Fed doesn’t deliver any additional rate cuts is another matter entirely. My guess is they will, and that growth will probably falter at some point. Expansions may not die of old age or exhaustion, but the Fed can certainly kill them, and notwithstanding the favorable term structure of both household and corporate debt profiles in America, the bill for the most aggressive hiking cycle in a generation will presumably come due eventually.

The macro assessment in the new statement was mostly unchanged. The Fed removed language indicating inflation has made progress towards their price stability goal. I wouldn’t read too much into that ostensible omission. That wording was superfluous by now, but as BMO’s Ian Lyngen remarked, “in essence, the Fed took the active language out of the statement [and] it’s a reasonable interpretation that [the Committee suspects] the downward trajectory has stalled.” The Fed reiterated the customary description of price growth as “somewhat elevated.”

In December, the statement said the jobless rate “had moved up but remained low,” whereas in January it just said the UNR “has stabilized at a low level.” The Fed called both labor market conditions and growth “solid.” Risks around the mandate are roughly in balance. The Fed’s committed to achieving its goals as set out by Congress. And so on.

The forward guidance was verbatim. “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the statement said.

Earlier Wednesday, while delivering yet another rate cut, the sixth straight, Bank of Canada governor Tiff Macklem expressed more than a little concern over the outlook for trade. “A long-lasting and broad-based trade conflict would badly hurt economic activity in Canada,” he warned.

Of course, Canada can spare itself the anguish. All they have to do is agree to Trump’s merger proposal.