Powell said Fed remained in waiting and seeing mode; The policy shift processing market

The Chairman of the Federal Reserve As Jerome Powell said on Wednesday Fed would wait more data on the direction of the economy before changing the interest rates, but warned that President Trump’s President Trump tariff policies encourage inflation and work further than the central bank’s goal.

Powell, speaking for the first time since Trump last week paused a few more stringent than the tariff series, also characterized the next market volatility from the last few weeks as a logical processing from the dramatic changes of Trump administration in trading policies – not stress signs that guarantee Fed’s response.

“For now, we have a good position to wait for greater clarity before considering adjusting our policy attitudes,” Powell said in his speech to the Chicago Economic Club.

In the question and answer session later, he noted the potentially difficult situation to develop where prices were pushed for higher by the temporary growth tariff and maybe the labor market weakened, leaving inflation and work further than the desired Fed level.

The Fed tries to keep inflation stable at 2% while maintaining maximum work.

“I think we will stay away from these goals, maybe for the balance of this year. Or at least not make progress,” because the impact of tariffs so far has proven to be greater than the most severe scenario in the estimated FED planning, said Powell.

He mentioned the Trump tariff plan “fundamental change” which did not provide business and economy with a clear parallel to be studied.

Powell said the US started the year around full work and with inflation is expected to continue to fall to the Fed target, something that is widely achieved.

In his first public speech about the new financial volatility, Powell said he felt the bonds and stock markets functioned properly, showing investors adapted to the new policy landscape.

Asked if there was a “fed clothing” where the central bank would enter if the market dropped, Powell said “no,” while offering an explanation.

“The market is struggling with a lot of uncertainty and that means volatility. But after saying that, the market functions … they are orderly and they function almost as you expect to function.”

US shares have come down in the session before Powell spoke, extending their losses afterwards.

“I think people hope that Powell is neutral and he is even Hawkish,” Jim Carroll, a senior wealth advisor to Ballast Rock Private Wealth in Charleston, South Carolina, said about additional losses in shares in response to Powell’s appearance. “When asked if there was such a thing as Fed putting the stock market, the answer was ‘no.'”

Increased uncertainty

In a broad conversation, Powell also said the Fed strictly monitored the results of the Supreme Court case about the shooting of Trump officials at an independent institution, but he did not think the results would apply to the Fed.

Powell said that Fed’s independence was a legal problem that could only be changed by the congress and made a standing ovation because it promised to ignore political influence and establish monetary policy based on economics and “without political considerations or other foreign factors.”

However, for now, politics around the tariff has made The Fed guess. It is still uncertain where the trading policy will eventually be resolved, and back and forth itself is leaving businesses and individuals who are not sure of how to react and, feed officials worry, can increase public expectations about future inflation.

US economic growth is indeed slowing down, he said, with consumer expenditure growing slightly, the flow of imports to avoid tariffs that tend to burden the estimated gross domestic product, and acid sentiment.

“Although there is an increase in uncertainty and the risk of decline, the US economy is still in a solid position,” Powell said. But “Data in the hand so far shows that growth has slowed in the first quarter of last year’s solid speed.”

Economists see that growth continues to slow down this year, while “household and business reports a sharp decline in sentiment and increased uncertainty about prospects, mostly reflecting trade policy issues,” Powell said.

The current benchmark Fed interest rate is 4.25%-4.50%, where since December after several interest rates at the end of last year.

Since then the progress restoring inflation to the 2% Fed target has slowed down. The tariff threatens to reverse some of these benefits, with Fed officials who focus on whether the anticipated price increase will be translated into persistent inflation that requires monetary policy responses.

Assessment of the impact that might be the center of the future debate of Fed about whether to leave interest rates that have not changed, lowering it – or even considering the increase in interest rates.

“The tariff is very likely to produce at least an increase in inflation. The effect of inflation can also be more persistent,” Powell said. “Avoiding the results will depend on the size of the effect, on how long it is for them to pass fully to the price, and, in the end, in maintaining expectations of long -term inflation anchored well,” an official who was given Aim had begun to emphasize.

While the inflation expectations during the short-term period “have risen significantly” because of the tariff, Powell said that long-term expectations more closely monitored by The Fed remain consistent with the objectives of inflation.

With policy makers who also watched work, Powell said the labor market remains “in solid conditions” and “on or approaching maximum work.”

But if The Fed is trapped between increased inflation and increased unemployment rates, “We will consider how far the economy of each goal, and the potential of different time horizons where each gap will be anticipated to be closed.”

The financial market is increasingly betting that when it comes to that, the Fed will act for a decrease in work and eventually cut the level of full percentage at the end of the year. Juni is still seen as the beginning, but because he spoke, betting really strengthened the decline in the fourth interest rate at the end of the year.
Source: Reuters