MNI: Powell Says Fed In No Hurry Amid High Policy Uncertainty

Federal Reserve Chair Jerome Powell said Friday the central bank can take its time before considering any further changes to interest rates as inflation is still above target and policy uncertainty out of Washington remains high. 

"We are focused on separating the signal from the noise as the outlook evolves. We do not need to be in a hurry, and are well positioned to wait for greater clarity," Powell told an annual monetary policy conference sponsored by Chicago Booth, according to prepared remarks. 

"If the economy remains strong but inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly."

The Fed chair is watching for signs that the uncertainty is weighing on economic growth prospects. 

"Recent indicators point to a possible moderation in consumer spending relative to the rapid growth rate over the second half of 2024. Further, recent surveys of households and businesses point to heightened uncertainty about the economic outlook," he said. "It remains to be seen how these developments might affect future spending and investment. Sentiment readings have not been a good predictor of consumption growth in recent years." (See MNI INTERVIEW: Fed To Focus On Growth Drag From Tariffs-Sahm)

INFLATION EXPECTATIONS

Powell said the Fed is paying close attention to a recent spike in some measures of inflation expectations. 

"Some near-term measures have recently moved up. We see this in both market- and survey-based measures, and survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor," he said. "Beyond the next year or so, however, most measures of longer-term expectations remain stable and consistent with our 2% inflation goal."

The Fed chair expects additional progress on inflation despite recent readings in the 2.5% range. 

"The path to sustainably returning inflation to our target has been bumpy, and we expect that to continue. We see ongoing progress in categories that remain elevated, such as housing services and the market-based components of non-housing services."

The Fed meets later this month and is widely expected to keep the federal funds rate on hold at 4.25-4.5%.