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Tariffs

Federal Reserve Chair Jerome Powell Signals Caution on Economic Outlook Amid Trade Policy Uncertainty

Strategic Insights

— 2 min read

Federal Reserve Chair Jerome Powell told reporters at a press conference on Wednesday that the central bank is well-positioned to wait and learn more about the likely course of the economy before considering any adjustments to its policy stance. Powell emphasized that uncertainty remains "unusually elevated" as trade and fiscal policy evolves, and the Fed expects a "meaningful" amount of inflation in the coming months. He also stressed that it is essential to ensure a one-time increase in inflation does not turn into a sustained inflation problem.

Key Takeaways:

  • The Federal Reserve is poised to adjust its policy stance as it continues to assess the impact of US trade policy on the economy.
  • Uncertainty remains "unusually elevated" due to trade and fiscal policy developments.
  • The Fed expects a "meaningful" amount of inflation in the coming months, with core PCE inflation forecast to be 3.1% in 2025.
  • Powell said the effects of tariffs will depend on their "ultimate level" but will lead to price increases and weigh on economic activity.
  • Many companies expect to pass on tariffs to the next person in the chain and ultimately to the consumer.
  • The Fed will continue to monitor the economic outlook and is prepared to adjust its policy stance if risks emerge.
  • Fed officials predict two more 25 basis points rate cuts in 2025, unchanged from March.
  • The FOMC cut its forecast for economic growth in 2025 to 1.4% from 1.7% in March, and for 2026 to 1.6% from 1.8%.
  • Core PCE inflation is now seen at 3.1% in 2025, up from 2.8% in March, before decelerating to 2.4% in 2026 and 2.1% in 2027.

Statistics:

  • The Fed has held interest rates unchanged for the fourth consecutive meeting, maintaining the target range for the federal funds rate at 4.25-4.50%.
  • 8 FOMC officials predict rate cuts in 2025, 7 see no cuts, 2 see one cut, and 2 predict three reductions.
  • In 2026 and 2027, FOMC officials expect one further cut, toning down its projections in March for two reductions in each year.
  • Core PCE inflation is forecast to be 3.1% in 2025, before decelerating to 2.4% in 2026 and 2.1% in 2027.
  • The unemployment rate is expected to remain at 4.5% in 2026.
  • The GDP estimate for 2027 is unchanged at 1.8%.

Sources:

  • [Alliance News] - The Federal Reserve is well placed to adjust policy as it continues to assess the impact of US trade policy on the economy, its chair said on Wednesday.
  • [Federal Reserve] - In a statement, the FOMC said: "Uncertainty about the economic outlook has diminished but remains elevated."
  • [Federal Reserve] - The FOMC's summary of economic projections predicts two more 25 basis points rate cuts in 2025, unchanged from March.
  • [TD Economics] - Thomas Feltmate at TD Economics said there were no surprises from the Fed today, and the timing of the next rate cut is "highly uncertain".

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