MNI: Powell Says Fed In Wait-And-See Mode On Trade Worries

Federal Reserve Chair Jerome Powell said Wednesday the FOMC should wait before making any interest rates moves given that President Donald Trump's high tariffs could raise both inflation and unemployment, putting the Fed in a "challenging scenario." 

"For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance. We continue to analyze the incoming data, the evolving outlook, and the balance of risks," he said in a speech prepared for the Economic Club of Chicago. 

"We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension. 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." 

The Fed's obligation is to prevent a temporary rise in inflation from becoming an ongoing problem, Powell said, repeating his assessment on April 2 that the tariffs and their likely effects are significantly larger than anticipated. Trump granted a 90-day pause on reciprocal tariffs but further raised duties on China since then. 

BALANCING MANDATES

"We will balance our maximum-employment and price-stability mandates, keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans," Powell said. 

So far progress on inflation "continues at a gradual pace," Powell said, estimating headline and core PCE inflation for March to be 2.3% and 2.6%, respectively. 

However, both survey- and market-based measures of near-term inflation expectations have moved up significantly, he noted. Survey measures of longer-term inflation expectations appear to remain well anchored for the most part and market-based breakevens continue to run close to 2%, he said. 

"As we gain a better understanding of the policy changes, we will have a better sense of the implications for the economy, and hence for monetary policy," he said. (See: MNI INTERVIEW: Fed Needs More Hawkish Message - Emmons)

Household and business sentiment have declined sharply but private forecasters continue to expect positive growth for the year, he said. "We are closely tracking incoming data as households and businesses continue to digest these developments."