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The Federal Reserve chair said there is "room for improvement" in how the central bank conveys economic uncertainties to markets and the public.

Federal Reserve Vice Chair Philip Jefferson said in a speech Wednesday that elevated tariffs will likely lead to inflation, but time will tell how impactful that spike in prices might be.

Even with Monday's U.S.-China tariff truce and Tuesday's inflation print, the market has felt better over the past several weeks, said Jamie Iselin, managing director and head of municipal fixed income at Neuberger Berman.

Federal Reserve Gov. Adriana Kugler said in a speech in Dublin that trade barriers could soon affect prices and slow down growth while increasing uncertainty in 2025.

"The threat of having both inflation and unemployment rising simultaneously continues to create a big headache for the Fed's interest policy," said Wells Fargo Investment Institute global fixed income strategist Luis Alvarado.

The specter and economic implications of tariffs coupled with still above-target inflation and a healthy labor market will sideline policymakers at this week's meeting, analysts said, but not everyone agrees when the next rate cut will be.

"For munis, a strong jobs report should reverse recent credit spread widening, while a weak jobs report should keep credit spreads around current levels," said BofA strategists.

The muni market is coming out of oversold conditions, said David Litvack, a tax-exempt strategist at BofA.

The Federal Reserve governor remains optimistic about tariffs being a one-time shock to prices, but the central bank still needs more clarity about what the policies will look like.

Federal Reserve Gov. Adriana Kugler said tighter monetary policy has proved to be less impactful on nonbank lenders during the post-pandemic era.

The International Monetary Fund lowered its economic growth projections for 2025, citing policy uncertainty. It also urged central banks to stand ready to use macroprudential tools to facilitate lending in a potential recession.

Anna Paulson, executive vice president and director of research at the Federal Reserve Bank of Chicago, will replace outgoing Philadelphia Fed President Patrick Harker.

Federal Reserve Chair Jerome Powell warned that actions that undermine the apparent stability of the U.S. economy could have lasting effects on its status as a global safe haven.

The central bank wants to let Trump's policies play out across the economy before deciding which way to move interest rates, and it's too soon to know what the impacts will be, the Federal Reserve chair said.

Wednesday marked the first trading session that saw cuts more than a basis point or two in spots since last week's extended selloff.

With no policy changes expected, analysts are eagerly awaiting the new Summary of Economic Projections for clues about future monetary policy.

President Trump's selection of Federal Reserve Gov. Michelle Bowman as the next vice chair for supervision comes as banking groups and their allies in Congress asked the administration to fill the position quickly. Bowman was the preferred choice for many in the industry.

Federal Reserve Chair Jerome Powell emphasized the need for patience amid uncertainty over the Trump administration's policies, saying there would be no immediate rate changes but that the Fed would proceed carefully.

Federal Reserve Gov. Christopher Waller said the Founding Fathers supported independent money management and undoing it now would be a mistake.

Inflation is front and center this week, with the consumer price index report released on Wednesday and the producer price index on Thursday.

Yields have fallen over the past few weeks, so "any decent excuse that rates move up a little bit after that big rally" may have occurred as the market digested the report ? which was a "little bit of a mixed bag" ? after the initial headline figure, said Jeff MacDonald, EVP and head of fixed income at Fiduciary Trust International.

The Fed meets this week, but the probability of another cut at Wednesday's meeting seems low amid elevated inflation and growth data, said Matt Fabian, a partner at Municipal Market Analytics.

"There are a lot of moving parts here with the potential to either help or hinder the Fed's quest for price stability and maximum employment" this year, noted BMO Deputy Chief Economist Michael Gregory, who says the Fed will "stand pat."

Municipals are underperforming USTs month-to-date, with the Bloomberg Municipal Index showing losses of 1.02% versus 0.92% for USTs as of Tuesday, but both are outperforming losses in corporates that are seeing 1.23% losses in January.

The Federal Reserve will be more cautious and slow rate cuts going forward, according to minutes of the December Federal Open Market Committee meeting, released Wednesday.

In his letter of resignation, Federal Reserve Vice Chair for Supervision Michael Barr said an attempt by the Trump White House to remove him could create a "distraction" for the Fed. He plans to retain his seat on the Board of Governors, which expires in 2032.

Analysts are unsure what the Federal Open Market Committee will do with monetary policy in 2025. The panel projects two rate cuts, but some analysts expect more, and others see fewer.