Jerome Powell, Chair of the Federal Reserve, testified before Congress earlier this week. He continued to underscore the federal bank’s hawkish promise to combat inflation. He strongly signaled the Federal Open Market Committee (FOMC) is not rushing to adjust its existing policies. They are working hard to get more granular data to determine just how tariffs are impacting prices. Powell’s statements came as he prepares to present the Fed’s monetary policy report to both the House Financial Services Committee and the Senate Banking Committee.
During his confirmation hearing to the Senate Banking Committee, Powell described the U.S. economy as “remarkably positive” and the labor market as “maybe at full employment.” Overall, he said that the economy “is still doing strong,” which was his short-hand for the labor market situation. Powell reiterated his caution against moving policy changes into new ground. He pointed to unpredictable outcomes of tariffs, even with the positive signs.
“The FOMC’s obligation is to keep longer-term inflation expectations well anchored and to prevent a one-time increase in the price level from becoming an ongoing inflation problem,” Powell noted. This speech really highlights the Fed’s ultimate mission of tamping down inflation while carefully making their way through the mess created by some unintended consequences of recent tariff introductions.
Powell pointed out that historical experience shows that tariffs tend to cause one-time price increases without creating a more permanent inflation. He admitted that the ultimate effect of tariffs is not yet known and will depend on what levels they finally land at. “The effects of tariffs will depend, among other things, on their ultimate level,” he said.
The Chair indicated that policymakers are “well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.” This language exemplifies the Fed’s approach of wanting to be data dependent before committing to actions that would endanger our economic recovery.
Powell appears to be preparing for his upcoming congressional testimony. In the background, he and his FOMC colleagues are closely considering the need to maintain economic expansion with the urgent inflationary pressures. The central bank’s current stance indicates a preference for patience as more data emerges regarding the effectiveness of tariffs in influencing prices.
The testimony comes after a long period of relatively strong economic growth, particularly in labor markets, which have prompted concerns about inflationary pressures. Chair Powell’s recent comments underscore the incredible strength of our economy and labor market. He’s still wary of price hikes coming from outside influences, like tariffs.