CHICAGO, April 16 (Reuters) – U.S. Federal Reserve Chair Jerome Powell said on Wednesday that the Fed would wait for more data on the economy’s direction before making any changes to interest rates and characterized recent market volatility as a logical processing of the Trump administration’s dramatic shifts in tariff policy.
“For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said in a speech to the Economic Club of Chicago.
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In a later question and answer session he noted a potentially tough situation developing for the Fed in which prices are pushed higher by tariffs while growth and possibly the labor market weaken, leaving both inflation and employment further away from the Fed’s desired levels.
The Fed tries to keep inflation stable at 2% while sustaining maximum employment as well.
“I do think we’ll be moving away from those goals, probably for the balance of this year. Or at least not making any progress,” due to the impact of tariffs that have proved larger, at least as announced, than even the most severe scenarios penciled into initial Fed planning estimates, Powell said.
He called Trump’s tariff plans “fundamental changes” that don’t provide businesses and economists with any clear parallels to study.
Powell noted that the U.S. began the year around full employment and with inflation expected to continue falling to the central bank’s target, an achievement many doubted the central bank could accomplish.
In his first public remarks on recent financial volatility, Powell said he felt that bond and stock markets were functioning well, with recent swings showing investors adapting to the new policy landscape.
Asked if there is a “Fed put” where the central bank would step in if markets plummet, Powell said no, while offering an explanation.
“Markets are struggling with a lot of uncertainty and that means volatility. But having said that, markets are functioning…They’re orderly and they’re functioning just about as you would expect them to function.”
U.S. stocks, already down on the session before Powell spoke, extended their losses afterward.
“I think people were expecting Powell to be neutral and he was hawkish instead,” Jim Carroll, senior wealth advisor at Ballast Rock Private Wealth in Charleston, South Carolina, said about the additional losses in stocks in response to Powell’s appearance. “When asked if there’s such a thing as a Fed put for the stock market, his answer was ‘no.'”
HEIGHTENED UNCERTAINTY
U.S. Federal Reserve Chair Jerome Powell speaks at a press conference, following a two-day meeting of the Federal Open Market Committee on interest rate policy, in Washington, D.C., U.S., March 19, 2025. REUTERS/Nathan Howard/File Photo Purchase Licensing Rights
In a wide-ranging question and answer session, Powell also said the Fed was closely monitoring the outcome of a Supreme Court case about Trump’s attempts to fire officials at independent agencies, but that he did not think the outcome would apply to the Fed.
Powell said that Fed independence was a matter of law that could only be altered by Congress, and drew robust applause for pledging to ignore political influence and set monetary policy based on economics and “without consideration of political or any other extraneous factors.”
For now, though, it is the politics around tariffs that have left the Fed guessing as the administration rolls out new import taxes, some of which have been paused amid turbulent market reaction even as further steps are proposed. It remains uncertain where trade policy will ultimately settle, and the back and forth on its own is leaving businesses and individuals uncertain how to react and, Fed officials worry, may raise public expectations about future inflation.
In his prepared remarks Powell said U.S. economic growth does appear to be slowing, with consumer spending growing modestly, a rush of imports to avoid tariffs likely to weigh on estimates of gross domestic product, and sentiment souring.
“Despite heightened uncertainty and downside risks, the U.S. economy is still in a solid position,” Powell said. But “the data in hand so far suggest that growth has slowed in the first quarter from last year’s solid pace.”
Outside analysts see growth continuing to slow over the year, while “households and businesses report a sharp decline in sentiment and elevated uncertainty about the outlook, largely reflecting trade policy concerns,” Powell said.
The Fed’s benchmark interest rate is currently set in a range between 4.25% and 4.5%, where it has been since December following a series of rate cuts late last year.
Since then progress on restoring inflation to the Fed’s 2% target has slowed. The tariffs threaten to reverse some of those gains, with Fed officials focused on whether upcoming price increases will translate into persistent inflation that requires a monetary policy response.
A judgment about the likely impact will be central to upcoming Fed debate over whether to leave the benchmark interest rate unchanged, lower it – or even consider rate increases.
“Tariffs are highly likely to generate at least a temporary rise in inflation. The inflationary effects could also be more persistent,” Powell said. “Avoiding that outcome will depend on the size of the effects, on how long it takes for them to pass through fully to prices, and, ultimately, on keeping longer-term inflation expectations well anchored,” an aim Fed officials have begun to emphasize.
While measures of inflation expectations over short-term periods “have moved up significantly,” because of tariffs, Powell said the longer-term expectations that the Fed watches most closely remain consistent with the Fed’s inflation goal.
With the Fed also watching employment, Powell said the labor market remained “in solid condition” and “at or near maximum employment.”
But should the Fed get caught between rising inflation and a rising unemployment rate, “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.”
Reporting by Howard Schneider and Ann Saphir; Editing by Chizu Nomiyama and Andrea Ricci
Our Standards: The Thomson Reuters Trust Principles.
Covers the U.S. Federal Reserve, monetary policy and the economy, a graduate of the University of Maryland and Johns Hopkins University with previous experience as a foreign correspondent, economics reporter and on the local staff of the Washington Post.
Reports on the Federal Reserve and the U.S. economy. Stories can be found at reuters.com.
