Why hasn't the Federal Reserve lowered interest rates yet, even though prices aren't rising?

According to the Zhitong Finance APP, the milder-than-expected inflation data and the significant easing of the China-U.S. trade war are alleviating market concerns about severe impacts on American households and businesses in the coming months. This has prompted Wall Street institutions to lower their recession expectations and provided policy space for the Federal Reserve to maintain current interest rates. Institutions such as JPMorgan Chase and Barclays adjusted their economic forecasts on Tuesday to reflect a positive economic outlook following the agreement reached between China and the U.S. over the weekend. According to the agreement, both sides will reduce the harsh punitive tariffs that have been in place since early April. JPMorgan economists now believe the probability of a recession is below 50%; Barclays economists have completely removed their recession forecast. Both institutions had previously expected that high tariffs would severely impact consumers and businesses, suppressing spending and economic activity. The China-U.S. agreement has also prompted financial markets to reprice, significantly reducing bets that the Federal Reserve would need to cut interest rates before July to cushion the economic downturn. Traders currently expect only two rate cuts this year, starting as early as September. Data from the U.S. Department of Labor on Tuesday showed that the consumer price index rose 2.3% year-on-year in April, marking the smallest increase in over four years. This reinforced market expectations that Federal Reserve policymakers will gradually cut rates in the second half of the year, rather than taking earlier and more aggressive actions. "The market has been worried that tariffs would push up inflation, and that risk still exists. But today's data at least relieved investors, showing that inflation is still moving in the right direction," said Jack Dolanhead, CEO of Longbow Asset Management. However, economists at Raymond James pointed out: "The uncertainty of trade policy and its impact on inflation will keep Federal Reserve policymakers on the sidelines for now." The Federal Reserve maintained short-term borrowing costs in the range of 4.25%-4.50% last week, a level that has been unchanged since December of last year. Federal Reserve Chairman Jerome Powell stated at that time that there were no signs of an economic collapse in the data. He noted that given inflation is still above the 2% target and rapidly evolving trade policies could further push up inflation while suppressing the economy, the best strategy is to wait for clarity before adjusting interest rates. U.S. President Trump took the opportunity to once again call for the Federal Reserve to cut interest rates, stating on Truth Social that CPI data shows "prices for almost all goods" are declining. "What’s wrong with the slow-moving Powell? This is unfair to the poised American economy! Let what needs to happen happen, and the results will be beautiful!" Due to global growth concerns and increased oil production, prices for some goods, particularly energy, fell in April. However, while the annualized inflation rate is far below its peak, it remains above the Federal Reserve's 2% target level. Federal Reserve policymakers believe that cutting rates while inflation is too high and expected to accelerate at least temporarily could release more inflationary pressure, ultimately suppressing economic growth. Data released on Tuesday showed that excluding the volatile food and energy sectors, core consumer prices rose 2.8% year-on-year. Prices for goods considered susceptible to tariffs, such as clothing, cars, and trucks, remained flat or declined, contrary to expectations—despite the new tariffs announced by Trump in March and April taking effect gradually. Economists still expect commodity prices to rise due to increased tariffs in the coming months. Before the weekend's easing, some tariffs on Chinese imports were as high as 145%, many of which have now been reduced to 30%. Even with some easing, the current overall level of tariffs remains significantly higher than at any time in the past 80 years, covering a broader range of imported goods. Since the announcement of increased tariffs on April 2, the Trump administration has only reached one trade agreement. Gregory Daco, chief economist at EY, wrote: "Given the unclear final shape of trade policy and the likelihood that Federal Reserve policymakers will not preemptively respond to changes in growth or inflation, we now only expect two rate cuts (down from three) and believe the first cut will occur in September (rather than July)."