If markets were looking to Federal Reserve Chairman Jerome Powell for some relief from the mayhem of the past two days, they may have to wait a little longer.
Speaking to the Society for Advancing Business Editing and Writing on Friday, Powell acknowledged President Donald Trump’s sweeping import tariffs, saying that “it is now becoming clear that the tariff increases will be significantly larger than expected.”
“The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” Powell added.
Trump announced a base of 10% tariffs on many imported goods from a host of countries, with some tariffs being equal to what the president says are the amount of tariffs and non-tariff measures the countries place on U.S. exports. China would face a 34% tariff on top of existing 20% duties, while the European Union could see tariffs of 20%. Some economists have questioned how Trump officials measured the existing tariffs those countries employ.
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The result has been a stunning reversal in the stock market, with the Dow Jones Industrial Average down close to 3,000 points in the past day and a half. Yields on Treasury bonds have dropped, offering some potential benefits to the economy.
“Right now there is a lot of uncertainty” about the effects of Trump’s economic policies, Powell said, but offered no indication the Fed would act until it knows more. “It is too soon to say what will be the appropriate path for monetary policy.”
For now, Fed officials are considering their lack of action on interest rates as a “placeholder.”
“We’ve taken a step back and we’re watching to see what the policies will be,” Powell said. “We think we are well positioned to address whatever may come.”
Less than 10 minutes before Powell’s speech, Trump posted on his social media platform: “This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly.”
The Fed has two mandates: maintaining stability of prices and keeping the labor market healthy.
The central bank received a positive note on the latter Friday morning when the Labor Department reported that 228,000 jobs were added in March, considerably above the 140,000 consensus forecast of economists.
That could leave the Fed with a little more leeway, but it also means Powell and others will not want to lower interest rates amid such a strong labor market. And if inflation does spike, the Fed would even be confronted with the possibility of needing to raise rates to counter price hikes.
Powell acknowledged the bind the Fed could be in, saying, “The two goals, as we say, are in tension. It’s not what we are seeing right now.”
If both inflation and unemployment were to increase, Powell said that Fed policy would look at how far “each variable” was from the central bank’s goals.
But Powell said the economy remains “still in a good place” amid the uncertainty created by the Trump administration. He did note that many economists have raised their odds of a recession in the imminent future. JPMorgan on Thursday raised its odds of a global recession to 60% from 40% previously.
Powell repeatedly stressed it is not the Fed’s role to comment on political developments or policy changes coming from the White House or Congress.
He said that Fed officials and staff have “25 to 35” years of experience dealing with economic changes and uncertainty. “It feels like we don’t need to be in a hurry. … You have inflation is going to be moving up and growth is going to be slowing, but it’s not clear at this time what the appropriate path of monetary policy is going to be.”
“We are strictly non-political,” he said in answer to a question about why he always wears a purple tie.
