Powell's full speech: Tariffs higher than expected, impacts will be greater than anticipated
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Powell's full speech: Tariffs higher than expected, impacts will be greater than anticipated
Powell stated that policy will remain stable until the situation becomes clear, and there is no rush to decide the path of monetary policy.
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Federal Reserve Chair Powell, in his latest remarks on Friday, reaffirmed the Fed's commitment to achieving maximum employment and price stability (the 2% target), noting that while the economy remains solid, it faces uncertainties such as trade policy. The labor market is balanced, inflation has slowed but pressures remain, and monetary policy will remain cautious and data-dependent, avoiding short-term shocks from evolving into sustained inflation. He emphasized uncertainty multiple times, stating that more observation and clarity are needed. Regarding tariffs, he said tariff increases will be larger than previously expected, and their economic impact could also be more significant than anticipated.
Full Remarks by Powell
Thank you for inviting me today. Monetary policy is most effective when the public understands what we are doing and why. Through your work, journalists like you help foster deeper understanding. I’m sure many of you here have questions. Before answering some of them, I’d like to briefly outline the outlook for the economy and monetary policy.
At the Federal Reserve, we focus on achieving our dual mandate objectives set by Congress: maximum employment and stable prices. Despite high uncertainty and rising downside risks, the economy remains in good shape. Recent data indicate solid economic growth, a balanced labor market, and inflation close to—but still above—our 2% target.
Recent Economic Data
After several years of strong growth, many forecasters expect a slowdown this year. Preliminary first-quarter GDP data will be released later this month. Limited hard data are consistent with a somewhat slower but still solid growth outlook. At the same time, surveys of households and businesses show declining optimism and rising uncertainty about the outlook. Survey respondents cite new federal policies—particularly those related to trade—as contributing factors. We are closely monitoring this divergence between hard and soft data. As these new policies and their potential economic effects become clearer, we will gain better insight into how they affect the economy and monetary policy.
By multiple indicators, the labor market appears broadly balanced and is not currently a significant source of inflationary pressure. This morning’s employment report showed the unemployment rate at 4.2% in March, remaining near the low levels seen since early last year. Nonfarm payroll growth averaged 150,000 jobs per month in the first quarter. Low layoff rates, moderate job growth, and a slowing labor force participation rate have collectively kept the unemployment rate stable.
Turning to the other part of our dual mandate, inflation has declined sharply from its pandemic peak in 2022. This progress was achieved without the high unemployment typically associated with tight monetary policy. Recently, inflation has made progress toward our 2% goal, though that progress has slowed. In February, the Personal Consumption Expenditures (PCE) price index rose 2.5% year-over-year. Core PCE, which excludes the more volatile food and energy categories, increased 2.8%. Looking ahead, higher tariffs will gradually affect our economy and could push inflation upward over the next few quarters. Both market-based measures and survey data indicate that near-term inflation expectations have risen. By most measures, longer-term inflation expectations—those for several years out—remain stable and aligned with our 2% inflation objective. We remain committed to returning inflation sustainably to our 2% goal.
Monetary Policy
Regarding monetary policy, we face a highly uncertain outlook, with risks of both higher unemployment and higher inflation. The new administration is implementing major policy changes across four distinct areas: trade, immigration, fiscal policy, and regulation. Our current monetary policy stance is positioned to respond to these risks and uncertainties, and we will adjust policy once we gain greater clarity on these policy changes and their potential economic impacts. It is not our role to comment on these policies. Instead, we assess their potential effects, observe economic behavior, and adjust monetary policy accordingly to best achieve our dual mandate objectives.
We have stated clearly that assessing the potential economic impact of higher tariffs is extremely difficult until we have more details—such as which goods are affected, tariff rates, duration, and retaliatory actions by trading partners. Currently, although uncertainty remains high, it is now evident that tariff increases will be larger than previously anticipated. Their economic impact could also be more significant than expected, including higher inflation and slower growth.
The magnitude and duration of these effects are still unclear. While tariffs are very likely to cause at least a temporary rise in inflation, they could also lead to more persistent effects. The key to avoiding such an outcome lies in maintaining stable longer-term inflation expectations, the scale of the impact, and how quickly these effects transmit into prices. Our responsibility is to ensure that longer-term inflation expectations remain well anchored and that a one-time increase in the price level does not evolve into a sustained inflation problem.
We will continue to carefully monitor incoming data, changes in the economic outlook, and the balance of risks. Until we have greater clarity about the economic outlook, we will not make hasty adjustments to our policy stance. It is too early to conclude what the appropriate path for monetary policy should be.
Conclusion
We understand the benefits of a strong economy—enabling workers to find jobs and keeping inflation low and predictable. We also understand that excessively high unemployment or inflation can cause real harm and hardship for communities, families, and businesses. That is why the Federal Reserve will continue to do everything we can to achieve our goals of maximum employment and price stability.
Thank you. I look forward to your questions.
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