CHICAGO: U.S. Federal Reserve chair Jerome Powell said Wednesday that the Fed would wait for more data on the economy’s direction before changing interest rates, and characterized recent market volatility as a logical processing of the Trump administration’s dramatic shifts in tariff policy.
“For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said in prepared remarks to the Economic Club of Chicago. His remarks noted a potentially tough situation developing for the Fed in which inflation is pushed higher by tariffs while growth and potentially employment weaken.
The Fed tries to keep inflation stable at 2% while sustaining maximum employment as well.
US Fed Chair warns tariffs will likely raise inflation, cool growth
“I do think we’ll be moving away from those goals, probably for the balance of this year. Or at least not making any progress,” due to the impact of tariffs that have proved larger, at least as announced, than even the most severe scenarios penciled into initial Fed planning estimates, Powell said. He noted that the U.S. began the year around full employment and with inflation expected to continue falling to the central bank’s target.
The outlook has now become extremely uncertain, Powell said, with “fundamental changes” in policy that don’t provide businesses and economists with any clear parallels to study.
In his first public remarks on recent financial volatility, however, Powell said he felt that bond and stock markets were functioning well, with the swings in security values showing investors taking stock of the new landscape.
Asked if there is a “Fed put” where the central bank will step in if markets plummet, Powell said “no, with an explanation… Markets are processing what’s going on…markets are struggling with a lot of uncertainty and that means volatility. But having said that, markets are functioning… Conditional on being in such a challenging situation, markets are doing what they’re supposed to do. They’re orderly and they’re functioning just about as you would expect them to function.”
U.S. stocks, already down on the session before Powell spoke, extended their losses afterward.
“I think people were expecting Powell to be neutral and he was hawkish instead,” Jim Carroll, senior wealth adviser at Ballast Rock Private Wealth in Charleston, South Carolina, said about the additional losses in stocks in response to Powell’s appearance. “When asked if there’s such a thing as a Fed put for the stock market, his answer was ‘no’.”
HEIGHTENED UNCERTAINTY
In his prepared remarks Powell said U.S. economic growth appears to be slowing, with consumer spending growing modestly, a rush of imports to avoid tariffs likely to weigh on estimates of gross domestic product, and sentiment souring.
“Despite heightened uncertainty and downside risks, the U.S. economy is still in a solid position,” Powell said. But “the data in hand so far suggest that growth has slowed in the first quarter from last year’s solid pace.”
Outside analysts see growth continuing to slow over the year, while “households and businesses report a sharp decline in sentiment and elevated uncertainty about the outlook, largely reflecting trade policy concerns,” Powell said in reference to the rapid changes in import taxes imposed by President Donald Trump.
The Fed’s benchmark interest rate is currently set in a range between 4.25% and 4.5%, where it has been since December following a series of rate cuts late last year.
Since then progress on restoring inflation to the Fed’s 2% target has slowed.
Despite the uncertainty and back-and-forth nature of Trump’s tariff announcements, a judgment about their likely impact will be central to upcoming Fed debate over whether to leave the benchmark interest rate unchanged, lower it - or even consider rate increases.
“Tariffs are highly likely to generate at least a temporary rise in inflation. The inflationary effects could also be more persistent,” Powell said. “Avoiding that outcome will depend on the size of the effects, on how long it takes for them to pass through fully to prices, and, ultimately, on keeping longer-term inflation expectations well anchored,” an aim Fed officials have begun to emphasize.
While measures of inflation expectations over short-term periods “have moved up significantly,” because of tariffs, Powell said the longer-term expectations that the Fed watches most closely remain consistent with the Fed’s inflation goal.
With the Fed also watching employment, Powell said the labor market remained “in solid condition” and “at or near maximum employment.”
But should the Fed get caught between rising inflation and a rising unemployment rate, “we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.”
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