Federal Reserve Chair Jerome Powell told the Economic Club of Chicago that the central bank has to keep in mind the effect sweeping tariffs being imposed by President Donald Trump don’t ignite an inflation rate that has been mostly dropping.
In the text of the speech, according to Bloomberg, Powell said policymakers would continue balancing their dual responsibilities of fostering maximum employment and stable prices, “keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans.”
“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said Wednesday.
It’s a message Powell has been hammering recently, including in remarks made earlier this month: Fed officials are in no hurry to change the central bank’s benchmark policy rate.
It’s a message that drew the ire of Trump, who posted on his social media site Wednesday night that Powell and the Fed are moving too slowly to cut interest rates.
As they seek greater certainty about how President Donald Trump’s economic policies, especially on trade, will affect the U.S. economy, Powell and other Fed policymakers have expressed support for holding rates steady, Bloomberg reported.
“For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said.
Conflicted mandate
The Fed chair granted that a weakening economy and elevated inflation could eventually bring the central bank’s two goals – lowering inflation and steady employment — into conflict.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” he said. “If that were to occur, 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.”
Many analysts predict the tariffs will boost inflation and slow economic growth, a view Powell shares. Inflation, as measured by the Fed’s preferred gauge, was 2.5% in the year through February, well down from its post-Covid peak but still above the Fed’s 2% target. In the speech, Powell said estimates suggest that measure will come in at 2.3% in March.
Fed officials cut interest rates three consecutive times at the end of 2024, but indicated early in 2025 they would take a more patient approach in the face of sticky inflation.
Meanwhile, layoffs and unemployment, at 4.2% in March, remain low. U.S. employers added 228,000 jobs last month, exceeding forecasts.
