Fed Speak – Chair Powell Reaffirms Commitment To Price Stability

Federal Reserve Chair Jerome Powell reaffirmed the central bank's unwavering commitment to price stability, signaling a continued pause in interest rate adjustments until the economic impact of President Trump's newly implemented tariffs becomes clearer.

While acknowledging the economy's underlying strength and a robust labor market, Powell emphasized that inflation remains stubbornly above the Fed's 2% target, injecting a dose of caution into market expectations. The Fed's wait-and-see approach, however, risks further inflaming tensions with the White House, as President Trump once again publicly criticized Powell, questioning his judgment and urging Congressional intervention.

U.S markets have begun the day in fine form, with the Nasdaq 100 adding 1.04%, whilst the Dow has gained 0.58%, and the S&P 500 added 0.66% in the first hour of trading.

Powell's prepared remarks, delivered to the House Financial Services Committee on Tuesday and slated for the Senate Banking Committee on Wednesday, painted a picture of a solid, though increasingly complex, economic landscape.

He reiterated the Fed's dual mandate of maximizing employment and maintaining price stability, stressing that the latter is a prerequisite for sustained labor market strength that benefits all Americans. While acknowledging that recent economic data indicates robust growth and near-full employment, Powell highlighted the uncertainties introduced by the evolving trade policy environment.

The Fed's preferred inflation measure is expected to edge up to 2.3% in May, with the core measure, excluding volatile food and energy prices, rising to 2.6%. These figures, while not drastically alarming, remain above the Fed's comfort zone, warranting a careful assessment of the inflationary pressures stemming from the new tariffs.

Historically, tariffs have typically resulted in one-time price increases, rarely triggering sustained inflationary spirals. However, Powell stressed that the magnitude and duration of the current tariffs' impact remain uncertain, necessitating a data-dependent approach. The Federal Open Market Committee (FOMC), the Fed's rate-setting arm, is in no rush to adjust its policy stance, preferring to gather more information on the tariffs' effects before making any further moves.

This cautious approach, however, has drawn the ire of President Trump, who has consistently advocated for lower interest rates to stimulate economic growth and reduce government borrowing costs. In a recent post on his Truth Social platform, Trump lambasted Powell, urging Congress to “work this very dumb, hardheaded person over.” These public criticisms, while not new, underscore the growing tension between the White House and the independent central bank.

The Fed's decision to hold steady on interest rates comes against a backdrop of revised economic projections indicating weaker growth and potentially higher inflation. The FOMC's updated forecasts suggest a GDP growth of only 1.4% in 2025, a significant drop from the 2.5% growth recorded in 2024. Meanwhile, inflation is projected to rise to 3% by year-end, exceeding the Fed's 2% target. Unemployment is also expected to edge up to 4.5%. These projections reflect the anticipated impact of the new tariffs and other economic uncertainties.

Analysts are divided on the Fed's current stance. Some argue that the cautious approach is prudent, given the uncertainties surrounding the tariffs and the potential for a policy misstep. Others contend that the Fed is being overly cautious, potentially hindering economic growth by keeping interest rates too high for too long.