Uncertainty remains high, but Federal Reserve Chair Jerome Powell emphasized the Fed’s focus on “separating the signal from the noise,” claiming that the central bank is “well-positioned to wait for greater clarity.”
During a talk at the University of Chicago’s Booth School’s Clark Center for Global Markets on March 7, Powell made it clear that the central bank will hold off on any major moves on interest rates, practicing a wait-and-see approach.
“Policy is not on a preset course. If the economy remains strong, but inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer,” he said. “If the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can ease policy accordingly.”
The central bank had originally anticipated several interest rate cuts in 2025, but economists are now expecting few, if any.
With the new administration’s “significant” policy changes in trade, immigration, fiscal policy and regulation, Powell said it is “the net effect of these policies that will matter for the economy and for the path of monetary policies.”
With the back and forth on tariffs and how that will be passed down to consumers, Powell said it’s not appropriate to react to a spike in prices if it’s a “one-time thing that is going to go through the economy.”
“In a simple case where we know it’s a one-time thing, the textbook would say look through it,” he said. “If it turns into a series of things and it’s more than that, and if the increases are larger, that would matter. What would really matter is what’s happening with longer-term inflation expectations, and how persistent are the inflationary effects.”
It’s important to keep the current context in mind, he added.
“We came off a very high inflation, and we haven’t fully returned to 2% on a sustainable basis, so you’ve got to put all that in the mix as you make this decision. I would point people back to 2019 when we had the Tax Cuts and Jobs Act. We had lower immigration, and we had regulatory policy under President Trump, in the first regime, and we wound up cutting three times because growth weakened so much.”
Powell acknowledged the public’s concern about inflation and the rising cost of goods.
“What the public experiences is the prices of things, and the prices of things went up a lot in 2021 and ’22, and to some extent, in ‘23. When we talk about inflation, we’re obviously talking about the rate of change now, but the public’s not wrong,” he said. “They are experiencing high prices—and you can have a great labor market—but if people are really struggling because of high prices, that’s what they’re really going to feel.”
Touching on Basel III Endgame, Powell said the Fed intends to have the project completed, emphasizing its importance in setting minimum standards for international banking.
“We’re kind of on hold until the U.S. banking agencies are really back up and running with new leadership, but once they are, we fully expect to get back to that work and complete the Basel III Endgame,” he added. “I have good reason to think that we’ll be able to do that.”
