The PCE the Fed's preferred inflation measure comes out this Friday. That could be somewhat of a preview. I guess the latest .9 percent PPI should be disregarded? (Over a 10% annual rate, if it were to persist)Powell is a dove and was wrong before of as they said inflation was "transitory." Raising taxes and eventually prices from tariffs is interesting because it does two things. It raises consumer costs and workers will try to demand more wages, this will allow inflation to linger longer and likely it could multiply for some time.
However, the second thing tariffs do is reduce demand because consumers now have less money. This will likely occur more slowly. Deficient demand will work the opposite way for prices. Some of this lack of demand is that the US tariffs will be hurting the world economy. So less world demand, inefficient cost shifting between countries and reduced domestic spending power is going to likely pack a punch. Powell has to try and thread the needle. Likely he is going to lower 1/2 point (one or two meetings) and pause. Inflation will likely show up to justify this. But soon we will see a crash, (maybe very soon, the stock market is at record highs).
Other things to watch for.
The Fed keeps track of the demand for all it's auctions. The latest demands were quite week. Lowering rates will make this problem worse. So you actually could see short-term rates go lower but long-term rates increase.
https://www.barrons.com/articles/treasury-30-year-bond-auction-yields-f32727f4
The Fed could buy longer term maturities directly but their balance sheet money printing will spook investors if they even hint at that.
The bond market took the last hit of inflation. Many lost serious money buying a long maturity bond that paid just 3%. I doubt we will ever see
long term rates that low again. Why? Because no one wants that debt when the government is increasing their spending. Even with the tariff revenue the deficit is climbing. Things are getting unsustainable and the Federal Reserve is really in no position to help that much.
Stagflation which is very new to most is likely for some months. Inflation plus low or negative growth. Powell will be defenseless. raise rates and hurt the eocnomy more, lower rates and the long end of the curve may not even move. He is lucky he is retiring soon.