ARLINGTON, Va.—Recognizing it is currently difficult to assess the likely economic effects of higher tariffs, Jerome Powell acknowledged the country faces elevated risks of higher unemployment, higher inflation and slower GDP growth.
“After a couple of years of solid growth, many forecasters have anticipated somewhat slower growth this year,” the Federal Reserve Board chair stated during the Society for Advancing Business Editing and Writing Annual Conference here. “The initial reading for first-quarter GDP will be released later this month. The limited hard data are consistent with a slower but still solid growth outlook.”
Powell said that at the same time, surveys of households and businesses report dimming expectations and higher uncertainty about the outlook.
“Survey respondents point to the effects of new federal policies, especially related to trade. We are closely watching this tension between the hard and soft data,” he said. “As the new policies and their likely economic effects become clearer, we will have a better sense of their implications for the economy and for monetary policy.”
Powell emphasized the labor market appears to be broadly in balance, and is not a significant source of inflationary pressure, citing the latest hobs report.
“Turning to the other leg of our dual mandate, inflation has declined sharply from its pandemic highs of mid-2022. It has done so without the kind of painful rise in unemployment that has often accompanied periods of tight monetary policy that are needed to reduce inflation. More recently, progress toward our 2% percent inflation objective has slowed,” Powell said.
Powell termed monetary policy outlook “highly uncertain.”
“The new Administration is in the process of implementing substantial policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation,” he said. “Our monetary policy stance is well positioned to deal with the risks and uncertainties we face as we gain a better understanding of the policy changes and their likely effects on the economy. It is not our role to comment on those policies. Rather, we make an assessment of their likely effects, observe the behavior of the economy, and set monetary policy in a way that best achieves our dual-mandate goals.”