Federal Reserve Chair Jerome Powell acknowledged increased uncertainty in the US economic outlook, but said officials don’t need to rush to adjust policy.
“Despite elevated levels of uncertainty, the US economy continues to be in a good place,” Powell said at an event Friday in New York hosted by the University of Chicago Booth School of Business. “We do not need to be in a hurry, and are well positioned to wait for greater clarity.”
Powell noted lingering unknowns about the potential effects of President Donald Trump’s economic plans, including for trade and immigration.
“While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their likely effects remains high,” he said.
Powell also said recent indicators suggested consumer spending may moderate, while surveys of household and businesses point to heightened uncertainty about the economy’s direction.
“It remains to be seen how these developments might affect future spending and investment,” he said.
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US government bond yields rose to their highest of the day after Powell’s comments, with rates on debt of all maturities up slightly. Earlier in the session yields tumbled as traders viewed the February jobs report as supporting expectations for several interest-rate cuts later this year.
Bumpy inflation
He said he expected progress on lowering inflation to continue, but unevenly.
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“The path to sustainably returning inflation to our target has been bumpy, and we expect that to continue,” Powell said. “We see ongoing progress in categories that remain elevated, such as housing services and the market-based components of non-housing services.”
He addressed recent data points suggesting an increase in consumers’ near-term inflation expectations, but said most longer-term measures “remain stable and consistent” with the Fed’s goal of 2% inflation.
Fed policymakers are widely expected to leave the central bank’s key policy rate unchanged when they next meet March 18-19. After cutting rates by a full percentage point in the closing months of 2024, officials have broadly signalled they are content to stand pat as they seek more progress on lowering inflation to their objective.
Policymakers are also keen to stay on hold as they navigate uncertainty over Trump’s economic proposals. Since taking office in January, Trump has slapped new tariffs on China, but seesawed on the specifics of plans to impose fresh levies on Mexico and Canada. He has also promised reciprocal tariffs on many other US trading partners, while pursuing stricter immigration enforcement and increased deportations of migrants.
The combination of such policies could put upward pressure on inflation while weighing on overall economic growth, according to some estimates. That has raised the possibility the Fed may face a scenario of slowing growth with elevated inflation.
“It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy,” Powell said. “As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves.”
‘Economy’s fine’
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Powell emphasized during a question-and-answer session that Fed officials weren’t increasing risks by being patient.
“The costs of being cautious are very, very low,” he said. “The economy’s fine. It doesn’t need us to do anything, really, and so we can wait and we should wait.”
He added that the cost of inaction might rise if inflation expectations were “clearly under pressure.”
Meanwhile, fresh labor-market figures released earlier Friday showed the US economy added 151,000 jobs in February and the unemployment rate ticked higher to 4.1%.
“Many indicators show that the labour market is solid and broadly in balance,” Powell said, adding that it is not a significant source of inflationary pressure.
The Fed chief also responded to a question about the Commerce Department’s decision to abolish committees that advise the statistical agency responsible for compiling vital US economic data such as gross domestic product and the Federal Reserve’s preferred inflation gauge.
“It needs to be said that the government-gathered data we get from the Bureau of Economic Analysis and the Bureau of Labor Statistics is incredibly important, and really the gold standard for data,” he said. “Being able to track what’s going on in the economy is very, very important, and it’s something that the United States has led in for a long, long time, and something we need to continue to lead in.”
