Dual Mandate Duel

Alexa Sinsheimer <sup>AC</sup> and Max Motz

As expected, the Federal Reserve maintained its benchmark policy rate at 4.25%–4.50%. In the first Summary of Economic Projections since the April tariff announcement, Fed officials forecast higher inflation and unemployment alongside lower growth. The updated projections highlight growing tension within the Fed’s dual mandate.

Although recent inflation data was promising, tariffs and rising oil prices present upside risks, weakening the case for rate cuts. On the other hand, officials are now forecasting slower growth, which strengthens the argument for cuts. Complicating the picture even further, the Fed’s expectations for unemployment have been slowly inching up.

Yet, the highly anticipated “dot plot” shows a median expectation of two cuts this year—unchanged from the March FOMC—even as the outlook for inflation, growth, and unemployment has shifted.

Is the Fed signaling greater tolerance for inflation above target? Do officials anticipate another “recalibration” of policy toward the labor market? Or have economic projections become less meaningful in a landscape shaped by trade and geopolitical uncertainty? Let’s dive in.


In the post-FOMC press conference, Chair Jerome Powell described the labor market as “solid,” while acknowledging a “very, very slow continued cooling” that is not “troubling at this time.” He noted that there are plausible scenarios in which the labor market either softens or remains steady.

While the unemployment rate has been relatively stable—hovering between 4.0% and 4.2% over the past 12 months—it has been inching upward. Continuing unemployment claims have also been on the rise this year. The impacts of tariffs, DOGE policy, and immigration reform may not yet be fully represented in the data. 

In the context of slowing growth, this trend could raise further concerns. During the 2022–2023 hiking cycle, labor market strength helped offset the impact of higher interest rates and increased the chances of a “soft landing.” A large number of job openings during that period allowed inflation to ease without a spike in unemployment, as employers cut openings rather than laying off workers. The job openings to unemployed workers ratio has decreased since 2022.

Even if today’s labor market remains “solid,” it may be more fragile. Given weaker internals, the Fed would likely opt to ease policy if forced to choose later this year between persistent inflation and labor market deterioration.

In a CNBC appearance today, Jeffrey Gundlach said he believes the Fed would prioritize combating unemployment over containing inflation. He noted that the bond market seems to be pricing in the same:

“We’ve seen long rates going up substantially more than short-term interest rates, which is the bond market’s way of, in my view, taking sides and saying it looks to me like they are going to cut rates even though inflation is probably higher than 3% between now and year-end.”


The equity indices finished the day largely flat, an indication that the Fed’s cautionary stance has already been largely priced in. The S&P 500 closed down just -0.03% and the Fed Funds Futures-based probability for the number of cuts in 2025 and 2026 remains at 2 each. 

It could be argued that the SEP and press conference have lost some relevance to the market at a time when projections and policy will largely depend on the result of continued trade negotiations as well as geopolitical ones. As Powell acknowledged, “We haven’t been through a situation like this. And I think we have to be humble about our ability to forecast it. So that’s why we need to see some actual data to make better decisions. We’d like to get some more data.”  

The Fed’s latest projections reflect a growing tension between persistent inflation risks and early signs of a softening labor market. While headline policy remains unchanged for now, upcoming economic data, shaped by tariffs and geopolitical developments, will play a decisive role in determining the Fed’s next move. In this environment, the “wait-and-see” approach is most appropriate, even if frustrating to investors seeking clarity.

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Alexa Sinsheimer <sup>AC</sup> and Max Motz
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