Powell: Inflation pressures are expected to rise significantly in the coming months due to tariffs; the labor market does not call for rate cuts
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Powell: Inflation pressures are expected to rise significantly in the coming months due to tariffs; the labor market does not call for rate cuts
Powell has repeatedly emphasized: "We expect significant inflation in the coming months."
Navigating Web3 tides with focused insightsAuthor: Zhao Yuhe, Wall Street Insights
Key takeaways from Powell's press conference:
1. Policy stance and interest rate path
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The federal funds rate remains unchanged. The Fed believes the current policy stance is "moderately restrictive" and "in a good place," providing flexibility to respond to future data developments.
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Powell emphasized that policy must be forward-looking rather than mechanically reactive to current data. He said: "We've always said we focus on incoming data, changes in the economic outlook, and the balance of risks."
2. Inflation and tariff impacts
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Powell repeatedly stressed: "We expect significant inflation in the coming months."
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This is primarily due to tariffs. He noted: "We're already seeing some effects and expect to see more."
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Powell stated it’s still unclear whether these inflationary pressures are one-off shocks. The Fed "cannot simply assume tariff-driven inflation will be temporary," though actual forecasts remain evolving.
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He acknowledged that predicting the transmission path of tariff-related inflation is "very difficult."
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While some forecasters believe the impact will be limited, he said, "We need to see actual data before making judgments."
3. Labor market and wages
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The current unemployment rate is 4.2%. Powell described this as being at the "low end of the estimated range for the long-run natural rate of unemployment," not indicative of labor market weakness.
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Real wages continue to rise at what Powell called a "healthy" pace, stating, "The labor market isn't calling for rate cuts."
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Job growth has slowed, but labor supply is also declining, maintaining overall balance.
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Powell pointed out: "Very few people are being laid off right now. But if layoffs were to suddenly increase while job-finding remains difficult, the unemployment rate could rise quickly." This scenario has not yet materialized.
4. Economic growth and outlook
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The U.S. economy remains "solid," with slight GDP fluctuations driven by technical issues in net exports. Underlying domestic demand growth remains strong.
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Although consumer and business confidence have declined slightly recently, Powell attributed this mainly to concerns about trade policy.
5. Artificial intelligence and long-term employment impact
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Asked about AI’s impact on jobs, Powell responded that the key question is: "Will AI enhance labor or replace it?"
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He believes AI has "transformative potential" but is still in early stages, with greater changes expected over the next two years.
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Powell said the Fed has no definitive conclusion yet, but this is an "important long-term issue."
6. Political responses and personal stance
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Regarding past criticism from Trump, Powell said: "The FOMC cares only about a strong labor market and price stability."
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When asked whether he would stay on as a governor after his chair term ends, he replied: "I'm not thinking about that. I'm focused on my current job."
The Federal Reserve held steady at its June meeting. Chair Powell said during the press conference that the U.S. economy remains solid, but adjustments in trade and fiscal policies remain uncertain. Higher tariffs could push up prices in the U.S., and their impact on inflation may prove more persistent. He reiterated that this could strain the Fed’s dual mandate—achieving maximum employment and maintaining price stability.
In his opening remarks, Powell said the U.S. economy remains firm, but inflation remains somewhat above the 2% target, justifying another hold this month. He said the current FOMC monetary policy stance is appropriate, while unusual swings in net exports complicate GDP measurement.
He said the Fed continues to monitor how confidence affects (business and consumer) spending. Powell noted that consumer spending growth has slowed, and recent household and business surveys show declining confidence and rising uncertainty, primarily due to concerns about trade policy.
On employment, Powell said current U.S. labor market conditions remain solid, with broad indicators consistent with maximum employment. "The labor market is not currently a primary source of inflation," he added later in the press conference. "The labor market is not calling for rate cuts."
On inflation, Powell said short-term inflation expectations have risen recently, although most long-term measures remain aligned with the 2% target.
Recent inflation expectation indicators have increased, both in market-based metrics and survey data. Surveys of consumers, businesses, and professional forecasters all point to tariffs as a key factor driving higher inflation expectations.
Powell said the Fed will continue to assess the appropriate stance of monetary policy based on incoming data, changes in the economic outlook, and the balance of risks. He noted that trade, immigration, fiscal, and regulatory policies continue to evolve, and their economic impacts remain uncertain.
On tariffs, he emphasized that adjustments in trade and fiscal policy remain uncertain, and higher tariffs could raise prices in the U.S., with potentially more persistent effects on inflation. Powell said the magnitude of tariff impacts depends on their final scale. Market expectations for tariff levels and economic impact peaked in April and have since eased. Nonetheless, tariff increases this year could still lift prices and dampen economic activity.
Such effects could be short-lived, one-time price level shifts, or they could lead to more sustained inflation. Avoiding the latter depends on the size of tariff impacts, how quickly they transmit into the price system, and whether longer-term inflation expectations remain anchored. He reiterated this could strain the Fed’s dual mandate—maximum employment and price stability.
"Without price stability, we cannot achieve a sustainably strong labor market over the long run—which is what all Americans need."
"For now, we believe the best course is to remain patient, wait for clearer signals about the economic trajectory, and then decide whether to adjust policy."
Later in the press conference, Powell said the overall magnitude, duration, and full manifestation of tariff impacts remain highly uncertain. However, he expects inflationary pressure from tariffs to emerge over the coming months.
"This is exactly why we believe the most appropriate approach for now is to 'hold steady'—observe and gather more information. We believe the current policy stance is suitable, giving us room to respond to future developments."
"Right now, both external economists and those within the Fed widely anticipate fairly noticeable inflationary pressure over the next few months. We must factor this in."
"You can ask any professional economist with adequate resources dedicated to forecasting—and everyone I know is currently predicting some degree of inflation increase in the coming months due to tariffs. Because someone has to bear the cost of tariffs."
He admitted that the timing of rate cuts partly depends on how large the tariff impacts turn out to be, and that more clarity on tariffs is expected this summer.
"We expect to learn more about tariffs this summer. We originally anticipated tariffs wouldn’t show much effect by now—and indeed, they haven’t. But over the next few months, we’ll gradually see how big the impact is, and that will shape our policy thinking."
"We still cannot confidently determine what final tariff levels will be. The transmission process from tariffs to final consumer prices is highly uncertain, as each participant along the chain hopes not to bear the cost. Ultimately, someone must absorb it—perhaps shared across participants, or borne entirely by one link. But the entire process is extremely hard to predict."
"We’ve never experienced anything quite like this before. I think we must remain humble when forecasting such issues. That’s why we need more actual data to make better-informed decisions. We hope to get more data."
Below is a transcript of the Q&A session:
Q1: Tariff impacts appear limited so far. Has this changed your view on how much economic shock these policies will ultimately cause, or your expectations about when those effects will show up in the data?
Powell: Since January and February, we’ve seen three consecutive months of favorable inflation data—that’s very welcome news. Partly, core services prices—including housing and non-housing services—have been gradually approaching the 2% inflation target. That’s positive.
At the same time, goods inflation has ticked up slightly, as you noted. And yes, we do expect to see further increases this summer. Tariff effects take time to move through supply chains to final consumers. For example, goods retailers are selling today may have been imported months ago, before tariffs were imposed.
So, we’re already seeing some effects and expect to see more. In certain categories—like personal computers and audio-visual equipment—we are seeing price increases attributable to higher tariffs.
We also review many business survey results. They vary, but overall, many firms expect to pass on part or all of the tariff costs downstream, ultimately to consumers.
Overall, the total impact of tariffs—how long it lasts, and when it fully materializes—remains highly uncertain. That’s precisely why we believe the most appropriate course now is to "hold steady," observe, and accumulate more information. We believe the current policy stance is suitable, giving us room to respond to future changes.
Q2: How should we interpret the rate cut projections? Is the FOMC expecting inflation to be well-controlled, creating room for cuts? Or is this a response to expectations of weakening economic activity? How should we read these projections?
Powell: If you look at the projections, you’ll see most expect inflation to rise first, then fall back down. But we can’t take that path for granted—we don’t know for sure it will happen.
One of our responsibilities is ensuring a one-time inflation spike doesn’t become a persistent inflation problem. Ultimately, that depends on several factors: how large the tariff impact is, how long it takes to fully show up, and whether we can keep inflation expectations stable.
Q3: From December 2018 to now, the FOMC has reduced its projected rate path by about 25 basis points per year. By 2027, the FOMC still projects rates to be higher than previously expected. Is this because you believe tariffs will lead to more persistent inflation? Or because you’ve reassessed the neutral rate? Why choose a slower path?
Powell: I’d focus more on near-term developments. Long-term economic forecasting is inherently difficult. You didn’t see members adjusting their long-term neutral rate estimates at this meeting. Those tend to change slowly.
I think since March, you can see some shifts—growth slowing slightly, unemployment up about 0.1 percentage point, inflation up about 0.3 percentage points. This is similar to the Summary of Economic Projections (SEP) from December and trends seen in March.
You can see tariff effects. In April, we learned that post-March meeting tariff levels might be higher than expected. Since then, expectations have pulled back but remain elevated. We’re adjusting in real time; individual views are accumulating gradually.
We did say uncertainty around the economic outlook has decreased somewhat—but remains high. Many surveys reflect this. It’s a line from the Fed’s internal “Beige Book”—I suggest checking the corresponding five-year historical report.
Tariff-related uncertainty actually peaked in April. Since then, it has declined. Our point is that uncertainty has “lessened, but remains elevated.” That’s the nature of the issue. I think that’s accurate.
Q4: Are you concerned the economy is weakening, and could that justify future rate cuts? While you worry inflation may rise, another possibility is that tariffs suppress demand and slow growth, which could contain inflation. What do you think of that scenario? How likely is it? Would you need several months of low inflation data before considering that outcome realistic?
Powell: We certainly monitor these dynamics closely. Overall, unemployment is 4.2%, and economic growth is around 1.5% to 2%—though unusual capital flows make precise measurement tricky. Market sentiment has improved from earlier lows, though it remains subdued.
Sure, there are challenges. Housing is both a long-term and short-term issue. But I don’t see current housing conditions as signaling fundamental economic problems. We face chronic housing shortages compounded by higher interest rates. I believe the best thing we can do for the housing market is restore price stability sustainably while fostering a strong labor market. That’s our biggest contribution.
Look at labor force participation, wage levels, and new job creation—all remain healthy. I’d say the labor market may be cooling very, very gradually, but there are no concerning signs yet.
We monitor everything very closely. Let me emphasize again: the current policy stance gives us ample room to respond to new economic developments. We’ll keep watching data. Many scenarios are possible—different combinations of outcomes. Inflation might reach our forecast level, or it might not. The labor market might soften—or not.
People are writing down what they think is the most likely scenario amid high uncertainty. But no one has strong confidence in their projected rate path. Everyone understands these projections are data-dependent. You can construct a reasonable rationale for any rate path in the SEP.
We update these forecasts quarterly. Doing so now is particularly challenging. But if a committee member includes rate cuts in their projection, it means they believe we’ll likely reach a point where cuts are needed.
Naturally, such projections represent joint probabilities of multiple factors occurring. But we must remember: we face enormous uncertainty.
Q5: Under what circumstances would you gain confidence in the outlook for inflation, growth, or unemployment? How many months of data would you need? What signals would you want to see before lowering the current restrictive rate level?
Powell: It’s hard to say exactly when that moment will come. We know it will eventually—maybe soon, maybe not. As long as the economy remains solid, and we continue to see the current labor market, moderate growth, and inflation steadily falling, we believe the current policy stance is appropriate. We should hold steady, watch, and learn.
Specifically, we expect to learn more about tariffs this summer. We originally expected minimal impact by now—and that’s what we’ve seen. But over the next few months, we’ll gradually see how big the impact is, shaping our policy thinking. We’ll also monitor labor market developments.
Eventually, things will become clearer. But I can’t tell you exactly when. We’ll closely track labor market strength and tariff-related changes. There will be further developments, especially on tariffs, even in the short term.
So, I still can’t confidently predict what final tariff levels will be. We have an estimate now—forecasts are converging—but uncertainty remains high.
We start by estimating the overall tariff rate impact. That’s the benchmark people are preparing for. But the transmission from tariffs to final consumer prices is highly uncertain.
You know there are many players: manufacturers, exporters, importers, retailers, consumers. Each hopes not to bear the tariff cost.
But ultimately, someone must pay. Maybe it’s shared; maybe one party absorbs it all. The whole process is extremely hard to predict.
We’ve never faced this exact situation. I think we must remain humble in forecasting. That’s why we need more actual data to make smarter decisions. We hope to get more data.
In the meantime, we can afford to wait because the overall economy remains solid.
Q6: Can you explain the divergence in the dot plot, especially regarding 2025 rate projections? Some officials don’t project cuts, while others foresee multiple cuts. Does this reflect differing views on the economic outlook? Different approaches to risk? Or varying degrees of resolve to avoid repeating past inflation mistakes?
Powell: You’re right—and this is actually common. Our committee holds diverse views. Still, there was strong support for today’s decision, and broad agreement that the current policy stance is appropriate.
You mentioned two key factors—I’d highlight them too:
First, differences in forecasts. People have different views of the future, reflected in their dot plot placements. For example, if you expect higher inflation, you’re unlikely to project many rate cuts.
But remember, as more data arrives, we’ll gain clarity on inflation’s path. When we eventually enter normalization (i.e., begin cutting), these differences will narrow—because we’ll be reacting to actual data, not “foggy forecasts” like now.
Current forecasts are judgments made amid uncertainty. That’s factor one—forecast differences.
Second, even with the same data, people may interpret risks differently. Some may worry more about inflation rising; others about persistent inflation; others about labor market weakness.
These differing risk assessments influence rate path views. So together, these two factors explain the divergence you see.
But as I said, uncertainty is very high—so no one has strong confidence in their projected rate path. That’s the current state, shaped by these factors. I believe as data becomes clearer, these divergences will gradually narrow.
Q7: You’ve said the current policy stance is “appropriate” and “moderately restrictive.” Given the high uncertainty—tariff levels, cost pass-through, whether prices rise or profits compress—why not adjust rates closer to “neutral” to navigate this uncertain environment?
Powell: Looking only at past data, one might conclude we should be near neutral rates. But we must look forward.
Right now, both external economists and Fed staff widely expect noticeable inflationary pressure over the next few months. We must factor that in.
Based solely on past data, one might argue for moving toward neutral. But we must act based on reality: the economy remains solid, so we can take time to see what unfolds.
There are still many possibilities regarding inflation and other factors. By waiting to understand the “transmission path” of tariff-driven inflation—and its effects on consumption, hiring, and economic activity—we can make wiser, more accurate decisions.
Q8: The U.S. president has repeatedly attacked you personally in public. Recent Supreme Court rulings may legally insulate the Fed from related pressures. Should the market and public treat these statements as mere “noise” until your term ends? Or are you concerned such rhetoric could affect Wall Street or consumer confidence in the economic outlook? If not reappointed as chair, would you stay on as a “governor” after your term?
Powell: For me, it’s simple. All FOMC members want a strong U.S. economy—with a robust labor market and stable prices. That’s our goal.
Our current policy stance is well-suited to achieving this and allows us to respond to data changes.
Economic resilience stems partly from our policy stance. We believe our current position is very appropriate for responding to major economic developments.
That’s the key—it’s what matters most to us. It’s essentially the only thing we care about. As for my post-term plans, I’m not thinking about that now. My full focus is on my current job.
Q9: Immigration enforcement agencies have recently increased workplace raids. What impact could these actions have on the labor market?
Powell: I won’t speculate. Economically speaking—we don’t comment on immigration policy. It’s outside our mandate and not something we should weigh in on.
But you can see unemployment has remained stable at a low level, within mainstream estimates of “maximum employment.” This suggests labor supply and demand are both declining.
Labor demand is slowing—you can see this in job growth data. At the same time, labor supply is shrinking due to significantly lower immigration.
These two forces—supply and demand—acting together keep unemployment in a stable range.
Q10: You mentioned possible adjustments to the Summary of Economic Projections (SEP). Could you elaborate on that?
Powell: This falls into two tracks:
The first is our overall policy framework, reflected in the consensus statement. We’ve said we’ll complete revisions and publish them by summer’s end. The process is going smoothly—we’ve completed required internal meetings and will now move to discussion on specific wording changes.
That’s the “framework” piece.
The second track involves improving our communication tools and methods. This will be our focus later this year—we plan to advance it at our fall meeting.
This meeting was preparatory—we had a high-level exchange, discussing many ideas.
The SEP is one element among others under consideration. We’re reflecting on whether our current communication can be improved. Many valuable suggestions emerged—discussions were productive.
This fall, we’ll ask staff to present deeper analysis and consider various options. I’ll emphasize: I’ll only support communication changes that enjoy broad backing.
Communication requires caution—I believe our current system works well, not that it’s “broken.” More communication isn’t necessarily better, but clearer communication truly is better.
Our goal is to find ways that help the public better understand our work—making policy transmission clearer and more effective.
Q11: You’re known for “data-driven decisions” rather than guessing. You say inflation data looks good, but we don’t yet know tariff impacts. Yet last December, when you cut rates, tariffs weren’t settled either—and inflation was higher than now. Why cut then but not now? What gave you confidence then that you lack now?
Powell: In December, our 2025 core PCE inflation forecast was 2.5%—a decent number at the time. But that was before we knew what specific policies would follow.
Then, especially in April, we realized tariff levels would be far higher than most forecasters expected. Our forecasts were similar to other well-resourced institutions—everyone underestimated tariff scale.
You can now see the forecast rise—from 2.5% in December to 2.8% in March, now 3.1%. A 0.6 percentage point increase in the 2025 forecast is substantial—and largely due to tariffs.
We still don’t know final tariff levels, but their impact will clearly be larger than most anticipated at year-end.
Q12: Ordinary consumers are waiting for rate cuts to ease burdens on mortgages and loans. Cumulative inflation over the past five years has exceeded 20%—people have endured tough times. Is there a threshold to your “wait-and-see” strategy? How do you judge when it’s “helping” the public versus starting to “harm” them?
Powell: Our goal is restoring price stability. For the public we serve, the most important thing is getting inflation sustainably back to 2%, while achieving maximum employment. Achieving both would be our greatest help to households and businesses.
Only then can they make decisions without constant inflation anxiety.
We must keep rates elevated to bring down inflation. Current rates aren’t unusually high. Our policy is slightly tight, or moderately restrictive. The economy doesn’t feel like it’s under severe monetary tightening. I’d call it “moderately restrictive.”
We need confidence that inflation will continue falling. Without tariffs, that confidence would likely already be building. Look at housing and non-housing services—they’re steadily declining.
But we need to better understand tariff impacts. I’m not confident about how to respond yet, because without knowing the scale, it’s hard to make confident judgments.
Once we have clarity, we can make better decisions. We can afford to wait because the economy is stable: unemployment at 4.2%, rising wages, clear gains in real wages; 12-month inflation at 2.3%.
This is “healthy growth” and “stable economy.”
Q13: So you said uncertainty has declined, growth is solid, inflation has fallen for three straight months—everything moves in the right direction. Are you implying Americans should brace for economic pain in the second half of the year?
Powell: That’s absolutely not what I mean. From our standpoint, I can say: The U.S. economy is in good shape. Inflation is falling, unemployment is 4.2%, real wages are rising, job growth is healthy, unemployment is low, labor force participation is solid.
The condition for waiting on rate cuts is understanding how tariff-driven inflation evolves. And on that, uncertainty remains high.
Ask any professional, well-resourced, dedicated forecasting economist—every single one I know currently predicts some inflation increase in the coming months due to tariffs. Because someone must bear the tariff cost.
This cost transmits through manufacturers, exporters, importers, retailers, supply chains, and ultimately consumers. Every player tries to avoid bearing the cost.
But ultimately, someone must pay—the cost will partly land on consumers. We know this—firms say so, and past data supports it. We know this pressure is coming.
All we want is to see a bit of actual impact before drawing conclusions—not jump ahead.
Q14: You’ve said for years you’re “data-driven,” but now you’re making forward-looking decisions. Can you be more direct: Do the data we see now actually indicate it’s time to cut rates?
Powell: No. Monetary policy must be forward-looking—that’s fundamental.
We’ve always said our decisions are based on “incoming data, changes in the economic outlook, and the balance of risks.” We stress this repeatedly—so policy is inherently forward-looking.
Think back to early pandemic days—we cut rates to zero before the economy actually collapsed, because we knew conditions would deteriorate severely. That was an aggressive, forward-looking decision.
It’s similar now. We know this pressure (tariffs) is coming, but we don’t yet know its full magnitude. Meanwhile, the economy remains solid.
The labor market isn’t “screaming for rate cuts.” On the business side—yes, there was a bump in April, but sentiment has clearly improved. Firms are adapting and know their path forward.
The overall tone is far more positive and constructive than three months ago. So again, we believe the current policy stance is appropriate.
Q15: In February, you told Congress the Fed was “overburdened” but perhaps not “overstaffed.” But in May, in a memo to staff, you announced a deferred resignation program and said you want to “right-size” the Fed. These seem contradictory. What changed in three months to make you decide to reduce staff?
Powell: I don’t see contradiction. When asked if the Fed has too many people, I said the issue isn’t headcount—it’s workload. We are working extremely hard.
We really are. But we must also be prudent stewards of public resources—and sometimes show the public we are. In modern Fed history, we’ve done this before, like buyout programs, to demonstrate serious management of public funds.
So we’re doing it again. Personally, I believe our staff grows about 1% annually. We now plan a comprehensive review over the next few years—across the Board and regional banks—to see if we can streamline 10% of positions, identify roles that could be eliminated or repurposed, improving efficiency.
We believe this goal is achievable over several years—and we can do it without compromising our core mission.
It must be a careful, deliberate process. We must always respect our critical responsibilities.
In my prior career, I led many workforce reductions. Done properly—with thorough planning, caution, and phased execution—it works. I believe the Fed will be fine.
The public won’t notice any decline in service capability.
We simply want to show the public we responsibly manage their resources. This initiative effectively erases a decade of staff growth—our way of demonstrating stewardship.
The “right-sizing” effort has just begun—currently launching a buyout program. I believe we can achieve this goal.
Many organizations find this approach feasible. You wouldn’t do it every year, but periodically, it’s perfectly acceptable. Done well, it doesn’t impair operational capacity.
Q17: Can you describe the FOMC’s internal discussion氛围 around fiscal policy in recent days? Did it influence members’ economic forecasts for 2026 and beyond?
Powell: Well, we don’t typically sit around debating or deeply discussing fiscal policy. We generally treat it as fully exogenous—something we neither control nor set.
So we barely discussed the bill itself or its details this time. It’s still evolving. Once it nears final form… we’ll assess its impact.
Also, the U.S. is a massive economy—so such policy effects are marginal.
I think these impacts may already be reflected in data, or will be considered by the next meeting. Then we’ll evaluate. But it’s not a major factor or discussion focus.
It may have been mentioned once or twice as an upcoming event, but with outcomes uncertain, detailed discussion is difficult.
Q18: Recently, the scale of economic data collection has shrunk. There are also concerns that long-standing underfunding and declining survey response rates may be worsening. Is this on your radar? How confident are you now in the economic data used for assessment?
Powell: Two points. First, the data we receive remains sufficient for our work. I’m not worried we can’t function—that’s not the issue.
The real concern is emerging trends: key data agencies are cutting staff and scaling back surveys, increasing statistical volatility.
We should view this at a higher level. From our perspective—as Fed, businesses, government, society—high-quality economic data is a vital public good.
These data aren’t just useful for the Fed—they’re crucial for government, Congress, agencies, and especially businesses. They need to understand the economy.
For decades, the U.S. has led the world in measuring and understanding its economy. With a large, dynamic economy, understanding its workings has been our strength.
I regret seeing cuts in this area. Ensuring the public better understands current conditions and future trends is a major public benefit.
Accurately measuring U.S. economic performance is extremely difficult. One book details this—estimating U.S. GDP involves countless complex factors.
Doing it well matters greatly. This shouldn’t be an area to cut investment. Quite the opposite—we should increase investment. It benefits the entire public.
Q19: You’re now assessing the monetary policy strategy framework. But next year we may have a new Fed chair. Could that affect your current evaluation? How do you ensure the framework’s continuity?
Powell: This policy framework dates back to 2012. It’s a committee document, not crafted by any single chair. We’re not inventing a new model, but continuously adjusting and evolving the existing one. So it shouldn’t depend on who chairs, but on economic realities and the committee’s collective strategy.
Thus, it doesn’t rely on any particular chair. We used to update it annually, now every five years. I’ve never heard anyone say, “A new chair might completely reverse course.” I don’t think that’s likely. Though of course, that’s not for me to decide.
Q20: Relatively low oil prices recently helped suppress inflation in several reports, but this trend is reversing due to Middle East tensions. How do you view Israel-Iran conflict impacts on the economy? Also, what lessons did we learn from 2022 Russia-Ukraine war, which caused energy price spikes?
Powell: We’re watching closely, just like everyone else. I have no further comment.
Energy prices could rise. Historically, Middle East unrest causes short-term energy price spikes, followed by declines. Such events usually don’t cause lasting inflation—except the 1970s, when a series of severe shocks had deep impacts.
We’re not seeing that now. Plus, the U.S. economy is far less dependent on foreign oil than in the 1970s. So… we’ll keep watching.
Q21: Some tech executives warn AI could replace many entry-level jobs and sharply raise unemployment. How concerned are you about AI’s threat to the labor market?
Powell: This is indeed a critical question. The real issue is: Will AI enhance human capabilities or directly replace workers?
We’ve all seen public statements, including today’s. But I won’t overinterpret isolated data points. AI may eliminate some jobs while creating new ones. Likely, both are happening.
Anyone interacting with AI is amazed by its capabilities. It’s genuinely novel. I believe it has transformative potential across industries—and we’re likely in very early stages.
Some say today’s AI will seem primitive compared to what we’ll see in two years—far more efficient.
So making definitive judgments now is very difficult. Some optimists believe it will boost productivity across the board; others fear widespread job displacement across income levels and occupations, white-collar and blue-collar alike.
I don’t know the answer. The Fed has no official view. But I’m certain this will remain a critically important issue for a long time.
Q22: Many articles and columns discuss a profound transformation in the U.S. and global economy—akin to the 1970s Bretton Woods collapse. Don’t you think the Fed should explain to Americans what we’re going through?
Powell: We are indeed in a period of intense transformation—geopolitically, in trade, in immigration policy—occurring not just in the U.S. but globally. So yes, many things are happening.
But in the short term, these changes don’t alter how we conduct monetary policy, our goals, or what we do. These aren’t within our mandate—they’re for elected governments to handle.
Still, undoubtedly, this is a true transitional era, and we struggle to predict where it leads.
You mention many believe this could usher in a more inflation-prone era—that’s possible, but not certain. AI could have the opposite effect: boosting productivity and reducing inflationary pressure. It’s hard to say.
You’re right. But frankly, our focus is more practical. Right now, our priority is maintaining low inflation and high employment. That’s the daily challenge we face.
Q23: What’s your view on the idea of “quiet quitting” in the labor market—slowing job growth, unemployment expected to rise slightly, and whether workers can still demand raises amid ongoing inflation?
Powell: We’re not seeing rising unemployment or clear signs of “labor market quiet quitting.” Marginally, our current unemployment rate is 4.2%. For many years, this would be considered very low. While it’s up from the post-pandemic low of 3.4%, 4.2% is roughly at the lower bound of the “long-run sustainable natural unemployment rate.” So I disagree with claims of labor market softness.
On wages, real wages (after inflation) are still rising, and at a pace exceeding what matches 2% inflation. Wage growth now better fits the framework of “2% inflation plus reasonable productivity gains.” So I believe the labor market is performing well.
Job growth has slowed, but labor supply is also declining, with fewer new entrants. Thus, unemployment stays stable around 4.2%, peaking at 4.3%. These are solid numbers, indicating a reasonably healthy labor market.
A more notable point: job openings are limited. So if you’re job-seeking, it may be tough. But simultaneously, layoffs remain very rare.
This creates a “balanced state” we monitor closely: if mass layoffs begin while job-finding remains hard, unemployment could surge quickly. But that hasn’t happened yet.
Q24: Everyone is talking about rate cuts. Why does almost no one in the projections expect rates to rise next year—or even stay flat? After all, you project inflation rising to 3% next year, and markets question whether price increases are merely “one-time events.”
Powell: Indeed, many committee members project no cuts this year, but some cuts next year.
So let me clarify: when filling out projections, members write down what they see as the “most likely scenario”—not ruling out other possibilities. Think of it as the “least wrong path” amid high uncertainty.
Also, no one has 100% confidence in their projected path. No one says, “My two-year rate path will definitely happen.” What they write answers: “If you were me, making a forecast now under uncertainty, what would you write?” It’s not easy or certain.
So that’s it—we’re not excluding or locking in any scenario. Of course, rate hikes aren’t our “base case,” nor the path most project.
Meanwhile, we strive to make the most reasonable forecasts, representing diverse views and response styles across committee members.
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