Federal Reserve Chair Jerome Powell hinted the central bank is unlikely to deliver President Trump his much-desired interest rate cuts anytime soon – citing uncertainty around the president’s own trade policies as cause for the delay.
Trump’s back-and-forth on tariffs – implementing stiff taxes on Canada and Mexico earlier this week after a 30-day pause, and then announcing a second halt – stirred intense market volatility.
But Powell on Friday reiterated that the Fed is “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.”
Central bankers will need to take a wait-and-see approach to Trump’s tariffs before they can consider policy changes, the chairman said during a speech at the US Monetary Policy Forum.
The White House “is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation,” he said.
“It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy.”
Powell last month indicated the Fed would wait to make any policy changes after some inflation reports came in hotter than expected, dimming hopes for rate cuts.
Then consumer confidence plunged seven points to 98.3 in February, suffering its largest monthly decline in four years.
A job report released earlier on Friday had some analysts convinced the economy was chugging along as hiring remained relatively steady.
US employers added 151,000 jobs in February and the unemployment rate ticked up to 4.1%, according to the Bureau of Labor Statistics.
Other analysts feared the unknown as they looked forward to March’s jobs report, which will likely show the fuller effects of federal job cuts from Elon Musk’s Department of Government Efficiency.
Yet Powell painted a healthy picture of the economy during his speech, arguing the jobs report is more evidence that “the labor market is solid and broadly in balance.”
“Wages are growing faster than inflation, and at a more sustainable pace than earlier in the pandemic recovery,” he said, adding that the US is in “a good place” and inflation is easing back to the Fed’s 2% target.
However, he also acknowledged the drop in consumer confidence. He tied the worsening sentiment to uncertainty around Trump’s tariffs, which economists have warned could inflate prices.
“The path to sustainably returning inflation to our target has been bumpy, and we expect that to continue,” Powell said.
Fed Governor Adriana Kugler, who was not at the forum, also indicated on Friday that the Fed was unlikely to make significant policy moves in the near future.
During a speech in Portugal, she said she sees “important upside risks for inflation” and that “it could be appropriate to continue holding the policy rate at its current level for some time.”The Federal Open Market Committee’s next meeting is scheduled for March 18-19. Investors largely expect target interest rates to remain unchanged in the 4.25% to 4.50% range, according to CME FedWatch.
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