Powell's full speech: Policy stance will not be easily adjusted, waiting for more clarity

Source: Jinshi

In his latest speech on Friday, Fed Chairman Powell reiterated the Fed's commitment to achieving maximum employment and stable inflation (2% target), pointing out that the current economy is stable but faces uncertainties such as trade policy, the labor market is balanced, inflation is slowing but there is still pressure, and monetary policy will remain prudent and flexibly adjusted based on data to prevent short-term shocks from evolving into sustained inflation. He mentioned uncertainty many times and said that it is necessary to continue to wait and see and wait for more clarity. Regarding tariffs, he said that the increase in tariffs will be larger than expected, and the economic impact may also be more significant than expected.

Powell's full speech

Thank you for having me here today. Monetary policy is more effective when the public understands what we are doing and why. Through your work, journalists like you help foster that greater understanding. I'm sure the journalists in this room have a number of questions. Before I take some questions, I will briefly outline the outlook for the economy and monetary policy.

At the Federal Reserve, we are focused on achieving our dual mandate given to us by Congress: maximum employment and stable prices. Although uncertainty is high and downside risks have risen, the economy remains in a good place. Recent data suggest that growth is solid, the labor market remains balanced, and inflation is close to but above our 2% objective.

Recent economic data

After several years of solid growth, many forecasters expect some moderation in growth this year. Preliminary data on first-quarter GDP will be released later this month. Limited hard data are consistent with an outlook for slower but still solid growth. At the same time, surveys of households and businesses report some decline in expectations and increased uncertainty about the outlook. Survey participants point to the impact of new federal policies, particularly related to trade. We are closely watching the conflict between these hard and soft data. As new policies and their likely economic impact become clearer, we will have a clearer picture of their impact on the economy and monetary policy.

The labor market appears to be roughly balanced across a number of indicators and has not become a significant source of inflationary pressure. This morning's employment report showed that the unemployment rate was 4.2% in March, remaining at a low level since early last year. Nonfarm payrolls grew by an average of 150,000 jobs in the first quarter. Low layoffs, modest job growth, and a slowing labor force participation rate have combined to keep the unemployment rate stable.

Turning to the other side of the dual mandate, inflation has fallen sharply from the peak of the pandemic in 2022. This decline has been achieved without the pain of high unemployment that typically accompanies tight monetary policy. Inflation has made progress toward our 2 percent objective recently, but progress has slowed. Personal consumption expenditures (PCE) prices increased 2.5 percent year-on-year in February. Core PCE prices, which exclude two volatile categories, food and energy, rose 2.8 percent. Looking ahead, higher tariffs will gradually affect our economy, likely pushing inflation higher in coming quarters. Both market expectations and survey data suggest that inflation expectations have risen in the near term. By most measures, longer-term inflation expectations (i.e., expectations beyond the next few years) remain stable and consistent with our 2 percent inflation objective. We remain committed to returning inflation to our 2 percent objective sustainably.

Monetary Policy

Turning to monetary policy, we face a highly uncertain outlook with risks of higher unemployment and higher inflation. The new administration is implementing significant policy changes in four different areas: trade, immigration, fiscal policy, and regulation. Our monetary policy stance is prepared to respond to these risks and uncertainties and will adjust as we gain a clearer understanding of the policy changes and their likely impacts on the economy. It is not our role to comment on these policies. Instead, we assess their likely impact, observe the behavior of the economy, and adjust monetary policy based on that to best achieve our dual mandate objectives.

We have made clear that assessing the likely economic impact of increased tariffs is difficult until more information is available about the details of the tariffs, such as the tariff targets, rates, and duration, as well as retaliatory measures by trading partners. While uncertainty remains high, it is now clear that tariff increases will be larger than expected. The economic impacts could also be more significant than expected, including higher inflation and slower growth.

The size and duration of these effects are unclear. While it is highly likely that tariffs will lead to at least a temporary increase in inflation, they could also lead to more persistent effects . The key to avoiding this outcome will be keeping longer-term inflation expectations anchored, the size of the effects, and the timing of their transmission to prices. Our responsibility is to ensure that longer-term inflation expectations remain anchored and that a one-time increase in the price level does not turn into a persistent inflation problem.

We will continue to carefully monitor incoming data, changes in the economic outlook, and the balance of risks. We will not easily adjust our policy stance until we have a clearer picture of the future outlook for the economy. It is too early to conclude on the appropriate path of monetary policy.

Conclusion

We understand the benefits of a strong economy -- where workers can find jobs and inflation is low and predictable. We also understand that too much unemployment or inflation can cause harm and pain to communities, families, and businesses. That is why we at the Federal Reserve will continue to do everything we can to achieve our goals of maximum employment and price stability.

Thank you, everyone. I look forward to your questions.