Federal Reserve Board Chairman Jerome Powell delivered these remarks to the Economic Club of Chicago Wednesday. He took on the prevailing economic wisdom and mainstream fears about the Federal Reserve’s dual mandate of promoting both price stability and maximizing employment. Powell reiterated that without price stability, the economy cannot maintain long-term positive labor market outcomes. His final comments underscored the challenges of the Fed’s current predicament. They highlighted the bind it finds itself in pursuing economic policy going forward in the wake of recent events.
Powell’s speech underscored a number of important themes on inflation, thriving in the labor market, and sustaining economic growth. He pointed out that the pace of inflation has softened a bit lately. With the Consumer Price Index (CPI) falling to 2.4% in March, that’s the lowest CPI inflation rate since last September. That’s a bright spot, and Powell was right to highlight such forward-looking good news. The latest economic data continues to reflect a deceleration in overall economic growth relative to last year, with preliminary estimates suggesting that PCE (Personal Consumption Expenditures) prices increased by 2.3% from the 12 months ending in March. Core PCE prices rose by 2.6%.
Employment Trends and Economic Growth
Powell did admit that the economy has only averaged 150,000 jobs added per month through March. This number represents a marked slowdown from the historic rates of job growth we’ve seen over the past year. He called the jobs picture pretty darn good. He cautioned that while the full-year growth projections continue to reveal growth is slowing, it’s still growing. The Fed chair reiterated that the economy must achieve price stability to maintain favorable labor market conditions, stating, “We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension.”
In a larger sense, Powell made the case for patience on a wider range of topics when it comes to monetary policy. He stated, “For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.” This sentiment demonstrates the Fed’s more cautious approach given the evolving economic data and continued uncertainties.
Tariffs and Inflation Expectations
Powell took the question of tariffs’ effects on the economy first. He disclosed that the latest round of increases in tariffs are “much bigger than you expect.” These changes would make already difficult attempts at striking a balance between inflation-busting and full-employment mandates even more challenging. His most important concession was to reassure attendees that survey-based measures of longer-term inflation expectations appear to be still well anchored for the time being.
“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell stated. This warning shot serves as a reminder that even with unclear and sometimes contradictory data, the Fed is keenly aware of its dual mandate.
Traders are looking forward to Building Permits and Housing Starts later today, as some of the most important U.S. data today. At the same time, Powell’s observations serve as important policy-making reality checks. He remarked, “We continue to analyze the incoming data, the evolving outlook, and the balance of risks,” indicating a proactive approach to navigating uncertainties.