By Nicole Goodkind

There's no recession in the forecast. But there's no rate cut either.

That was the message from three Federal Reserve Bank presidents speaking at the Atlanta Federal Reserve's financial markets conference on Amelia Island Tuesday evening.

San Francisco's Mary Daly, Cleveland's Beth Hammack and Atlanta's Raphael Bostic each described a cautious approach shaped by uncertainty, not urgency.

"We're in center position," Daly said. "My reaction function is to stay in center position and be prepared to move agilely, but not abruptly or quickly when we don't need to, because we don't have enough information to really bring those confidence bands in."

Wait-and-see has been the Fed's message as President Donald Trump's trade policy roils markets and ripples through the economy. Last week, Moody's downgraded U.S. credit and projected the federal deficit will swell to nearly 9% of GDP this year, up from 6.4% in 2024. The downgrade raises fresh questions about Washington's ability to manage its debt over the long term, even as the White House pushes for more tax cuts.

Hammack, the newest Fed president and a former Goldman Sachs executive, laid out three possible scenarios. The first is that tariffs act as a one-time price shock that weighs on growth and has implications for the labor market. The second is that businesses start slowly embedding tariff costs into prices, then inflation could stay elevated for longer, requiring higher rates. And the third is that both inflation and unemployment worsen at the same time, creating a difficult trade-off between its two mandates for the Fed.

"I am a person of action," Hammack said. "But right now, I think the best action we can take is to sit on our hands."

Bostic was more definitive. "I don't have a recession in my outlook," he said. Still, he noted, many business leaders are holding off on big investments until they get more clarity on trade policy, immigration and fiscal priorities. "The bones of the economy are sound," he said. But new projects and innovation, he said, are largely on hold.

Daly said her economic outlook "isn't gloomy," either. But she warned against treating forecasts as gospel and said the Fed needs to be honest about what it doesn't know. Tariffs are still playing out. Businesses are adjusting at different speeds. Consumers may be more tapped out than they appear.

The three presidents all emphasized the limits of backward-looking data and the growing importance of anecdotal intelligence. Each district is leaning more heavily on interviews, site visits and qualitative insights from employers and workers.

Daly and Hammack also said their banks are experimenting with machine learning and textual analysis to detect sentiment shifts faster than traditional economic indicators can capture.

"It's really important to make sure that we're separating the emotion from the actual impact," Hammack said.

Market participants may want a timeline for rate cuts, but the Fed isn't offering one. For now, officials are staying put, watching carefully and waiting for a signal worth acting on.

Write to Nicole Goodkind at nicole.goodkind@barrons.com

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May 21, 2025 05:28 ET (09:28 GMT)

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