Tariffs give the Fed an inflation foil

The Federal Open Market Committee on Wednesday held short-term interest rates steady, but the bigger news concerned the Fed’s updated economic projections. Policy makers now expect GDP growth of 1.7% this year, down from the 2.1% they estimated in December, and they think their preferred measure of core inflation will hover at 2.8% instead of 2.5% as they predicted three months ago.

Under any other circumstance, investors might have spent the rest of the afternoon fretting about stagflation, especially given persistent concerns in markets about a possible recession. Instead, Mr. Powell shifted the focus to the tariffs Mr. Trump keeps threatening against all and sundry as an explanation for whatever might ail the economy this year. This provides Mr. Powell convenient cover as it becomes clearer that last autumn’s series of interest-rate cuts, totaling one percentage point, were premature.

Buck passing—pardon the monetary pun—was a theme of this meeting in other ways. The Fed is slowing, to $5 billion per month, the pace at which it’ll let Treasurys roll off its balance sheet under quantitative tightening. Mr. Powell pitches this as a technical measure to buffer the balance sheet from political fighting over the debt ceiling this year, but in effect it’s a monetary easing move.

The biggest theme Wednesday was Mr. Powell’s uncertainty about where the economy goes now under Mr. Trump’s stewardship. Amen. But one thing the Fed has figured out for sure is that at last it has a political foil for inflation.