Stock market wants Powell to signal he’s got their back. Can he deliver?

Federal Reserve Chair Jerome Powell has to navigate worries about growth with recent sticky inflation readings.

Since the end of the pandemic, financial markets have often overlooked periods of weak economic data and corresponding worries about a recession. Not this year.

Rising uncertainty about the outlook has risen for consumers and businesses, sparked by the new Trump administration’s economic policies. Investors have pulled back, sensing the economy has slowed markedly.

The stock market will be tuning into the Federal Reserve this week for insight into four issues of concern.

The first is economic fragility. Economists are now busy slashing their growth estimates for the year.

Former Boston Fed President Eric Rosengren told MarketWatch in an interview he now sees growth for the year at 1%, down from his prior forecast of 2.4%.

Julia Coronado, president of MacroPolicy Perspectives, said a survey of economists timed to coincide with the Fed meeting showed that analysts have slashed their growth forecasts from 2.2% to 1.5%.

The second issue investors will want to hear about is whether the Fed can lower rates to help the slowing economy or if they hold off until they are confident the recent bump in inflation will prove temporary, said Diane Swonk, chief economist at KPMG.

Traders in derivative markets are expecting three quarter-point cuts this year.

Economists think it may be hard for Fed Chair Jerome Powell to deliver.

“The Fed has a knack for turning hawkish just as the economy shifts in a way that eventually drives a more dovish monetary-policy path,” said Tim Duy, chief economist at SGH Macro Advisors.

Vince Reinhart, chief economist at BNY Investments, said it will be difficult for Powell to deliver a message to soothe markets.

The Fed is like an oil tanker that takes a long time turning. It is hard for the Fed to pivot, as concerns about the economic outlook are very recent. Only a month ago, the Fed was downplaying signs about economic activity because the stock market wasn’t concerned about it, Reinhart noted.

So the Fed’s economic forecast may skew hawkish and it might be hard for Powell to walk it back.

Duy said Powell does have some tricks up his sleeve. The Fed chairman will likely say the central bank is taking risks of labor-market weakness seriously. He will also likely argue that the level of the Fed’s benchmark rate — in the range of 4.25% to 4.5% — is “restrictive,” or putting downward pressure on inflation.

That gives the Fed room to cut, economists said. Powell will be able to argue that a rate cut is just bringing rates back to neutral, neither restricting nor boosting growth.

Underlining the outlook for the Fed are views on how tariffs might impact the economy.

At the start of the year, markets expected China to be the focal point of U.S. tariff policy. But the spread of tariffs to the closest U.S. allies, like Mexico and Canada, has been chaotic and hard to predict.

Economists believe there will be a shock to inflation from the tariffs that hurts economic growth.

Higher inflation will make the Fed slow to respond, the fourth concern for markets.

“The near-term burst of inflation will keep the Fed from stepping in as early or as aggressively as they typically would,” Coronado said.

With inflation sticky, investors should understand that the Fed will be “more reactive rather than proactive” this year and won’t be able to cut rates at the first signs that the economy is weakening, agreed Robert Kaplan, the former Dallas Fed president.

The Fed will release a statement and economic forecasts at 2 p.m. Eastern on Wednesday.

At their meeting Wednesday, economists expect the Fed will hold its benchmark interest rate steady as it remains in a “wait-and-see” mode.

Rosengren, in an interview with MarketWatch, said he thinks the economy will sufficiently weaken later this year and both hawks and doves on the Fed will agree to cut one or two times in the fall.

“I had originally assumed that the tariffs weren’t going to be substantial and I had no change in policy over the course of this year, but my expectation now is that the economy will weaken sufficiently that they’ll be easing, basically for the wrong reason,” Rosengren said.

He puts the odds of a recession at about 30%. In normal circumstances, those odds are around 15%.

At the same time, inflation has been surprisingly strong in the first two months of the year. Consumer expectations about inflation, a key metric for the Fed, have risen sharply.

Powell has tried to give himself some breathing room by saying the Fed doesn’t need to be in a hurry.

“The costs of being cautious are very, very low. The economy’s fine. It doesn’t need us to do anything, really, and so we can wait and we should wait,” Powell said.

The Fed chairman said the central bank wants to understand the “net effect” of Trump’s policy changes in four district areas: trade, immigration, fiscal policy and regulation.

The Trump tariffs, as generally outlined by the White House, are expected to boost core PCE inflation by roughly 0.5 percentage points, according to Torsten Slok, chief economist at Apollo Global Management.

That will keep inflation near a 3% range, too hot for many Fed officials.

Claudia Sahm, chief economist at New Century Advisors and a former Fed staffer, agreed that it would take serious signs of slow growth to get the Fed to cut rates.

Sahm said the Fed will either grind along and not act, or there will be a notable deterioration in the labor market and the central bank will move into a more aggressive cutting cycle.

“If it is a sufficient enough deterioration, the hawks come along with it,” she said.

Luke Tilley, chief economist at Wilmington Trust, said he thinks there will be 100 basis points in cuts this year.

“I think consumers are not that strong” and tariffs are a big tax hike that will pull the economy down, he said.

James Egelhof, chief U.S. economist at BNP Paribas, thinks the Fed will be on hold until 2026, with growth bottoming below 1% in the third quarter and inflation peaking at 4% in the fourth quarter.

Coronado said that rate cuts are not the panacea for markets.

“A rate cut isn’t going to be the antidote for all the worries that investors and businesses have right now,” she said.

Uncertainty about immigration policy, cuts in federal government contracts and reshaping of global alliances are part of the stew of worries that will keep everyone from making big decisions.