Federal Reserve chairman Jerome Powell stated Friday that the central banks is not in a hurry to change interest rates. He also stressed that policymakers would wait until they assess the economic impact of Donald Trump’s policies to make any decisions.
Powell, speaking at the US Monetary Policy Forum in Washington, DC, cited ongoing changes to trade, immigration policy, fiscal policy and regulations as being sources of uncertainty. He noted that the “net effect” of the policy changes will be important for the economy, and the direction of the monetary policy.
Powell stated that despite growing expectations of rate reductions later in the year, Powell is still on a wait-and-see mode.
“We do not have to rush and we are in the best position to wait until there is more clarity.”
Fed’s position and market expectations
Traders have increasingly priced in rate cuts, with CME Group’s FedWatch gauge reflecting expectations for three quarter-percentage-point reductions by the end of the year, starting in June.
Powell’s comments suggest that the Fed does not have a predetermined path to ease monetary policy.
Powell stated that “Policy does not follow a predetermined course.” Powell said that “our current policy is well-positioned to handle the risks and uncertainty we face when pursuing our dual mandate”.
Fed Governor Adriana Kugler, in a separate speech to the Portuguese press, reiterated Powell’s warning, noting “important downside risks for inflation,” and stating that it could be “appropriate” to keep policy rates at their current levels for a while.
Fed policymakers will likely keep their key policy rate the same at their meeting on March 18-19.
Data on the economy and inflation forecast
Powell said that the US remains “in a good place”, with “a solid labor market” as well as inflation returning to the Fed’s target of 2%.
He acknowledged that price pressures continue to be a concern, saying, “We expect this to continue.”
The Fed has a 2% target for inflation. He addressed recent data showing a rise of consumers’ expectations about inflation in the near term, while noting that the “most measures” are stable.
Fed preferred inflation indicator showed 12 month inflation of 2.5% or 2.6% if you exclude food and energy. Sentiment surveys indicate that Trump’s tariff policy is causing growing concern.
The latest employment report shows that non-farm payrolls rose by 151,000, slightly less than expected, in February. Meanwhile, unemployment rates increased to 4.1%.
Powell described the labor market in terms of “solidity and broad balance,” noting that wages continue to grow faster than inflation. The average hourly wage rose 0.3% last month and by 4% over the past year.
These remarks show that the Fed, while aware of the market’s expectations of rate reductions, is still cautious and prefers to evaluate the impact of Trump’s policies first before making any changes to the monetary policy.
As new information becomes available, this post Fed Chair Powell warns against rate cuts in the face of President Trump’s policies may change.
