Fed Chair Jerome Powell Warns Trump Tariffs Could Increase Inflation In 'Economic Outlook'

Forbes Breaking News

At the Economic Club of Chicago, Federal Reserve Chair Jerome Powell delivered his "Economic Outlook" speech.

Transcript

00:00It's great to be back in Chicago, and thanks for that kind introduction, Austin.

00:09So I'm looking forward to our conversation, my conversation with Professor Rajan, Raghu,

00:16but first I'll briefly discuss the outlook for the economy and monetary policy.

00:21So, at the Fed, we are always focused on the dual mandate goals that Congress has given us,

00:26maximum employment and stable prices.

00:30Despite heightened uncertainty and downside risks, the U.S. economy is still in a solid position.

00:37The labor market is at or near maximum employment.

00:41Inflation has come down a great deal, but is still running a bit above our 2% objective.

00:47Turning briefly to the incoming data, we'll get the initial reading on first quarter GDP in a couple of weeks.

00:53The data we have at hand so far suggests that growth has slowed in the first quarter of this year from last year's solid pace.

01:03Despite strong motor vehicle sales, overall consumer spending appears to have grown modestly.

01:08In addition, strong imports during the first quarter, reflecting attempts by businesses to get ahead of potential tariffs,

01:16are expected to weigh on GDP growth.

01:19Surveys of households and businesses report a sharp decline in sentiment

01:23and elevated uncertainty about the outlook, largely reflecting trade policy concerns.

01:30Outside forecasts for the full year are coming down and, for the most part, point to continued slowing but still positive growth.

01:38We are closely tracking incoming data as households and businesses continue to digest these developments.

01:48In the labor market, during the first three months of this year, non-farm payrolls grew by an average of 150,000 jobs per month.

01:57While job growth has slowed relative to last year,

02:00the combination of low layoffs and lower labor force growth

02:04has kept the unemployment rate in a low and stable range.

02:08Meanwhile, the ratio of job openings to unemployed job seekers

02:12has remained just above one near its pre-pandemic level.

02:18Wage growth has continued to moderate while still outpacing inflation.

02:24Overall, the labor market appears to be in solid condition and broadly in balance

02:29and is not a significant source of inflationary pressure.

02:34As for our price stability mandate,

02:37inflation has significantly eased from its pandemic highs of mid-2022

02:41without the kind of painful rise in unemployment

02:45that has frequently accompanied efforts to bring down high inflation.

02:49Progress on inflation continues at a gradual pace,

02:53and recent readings remain above our 2% objective.

02:57Estimates based on the most recent data from last week

02:59showed that total headline PCE prices rose 2.3% over the 12 months ending in March,

03:07and that excluding the volatile food and energy categories,

03:11core prices rose 2.6%.

03:13Looking ahead, looking forward,

03:16the new administration is in the process of implementing

03:19substantial policy changes in four distinct areas.

03:23Trade, immigration, fiscal policy, and regulation.

03:30These policies are still evolving,

03:32and their effects on the economy remain highly uncertain.

03:36As we learn more, we will continue to update our assessment.

03:40The level of tariff increases announced so far

03:43is significantly larger than anticipated,

03:46and the same is likely to be true of the economic effects,

03:49which will include higher inflation and slower growth.

03:53Both survey and market-based measures

03:56of near-term inflation expectations have moved up significantly,

03:59with survey participants pointing to tariffs.

04:03Survey measures of longer-term inflation expectations,

04:06for the most part, appear to remain well-anchored as well.

04:11Market-based break-evens continue to run close to 2%.

04:14So, as we gain a better understanding of the policy changes,

04:19we'll have a better sense of the implications for the economy,

04:21and hence for monetary policy.

04:24Tariffs are highly likely to generate

04:26at least a temporary rise in inflation.

04:30The inflationary effects could also be more persistent.

04:34Avoiding that outcome will depend on the size of the effects,

04:37on how long it takes for them to pass through fully to prices,

04:41and ultimately on keeping longer-term inflation expectations well anchored.

04:45Our obligation is to keep longer-term inflation expectations well anchored

04:50and to make certain that a one-time increase in the price level

04:54does not become an ongoing inflation problem.

04:59As we act to meet that obligation,

05:01we will balance our maximum employment and price stability mandates,

05:05keeping in mind that without price stability,

05:07we cannot achieve the long periods of strong labor market conditions

05:11that benefit all Americans.

05:15We may find ourselves in the challenging scenario

05:17in which our dual-mandate goals are in tension.

05:21If that were to occur,

05:22we would consider how far the economy is from each goal

05:25and the potentially different time horizons

05:27over which those respective gaps would be anticipated to close.

05:31As that great Chicagoan, Ferris Bueller, once noted,

05:39life moves pretty fast.

05:42For the time being,

05:44we are well-positioned to wait for greater clarity

05:47before considering any adjustments to our policy stance.

05:50We continue to analyze the incoming data,

05:53the evolving outlook, and the balance of risks.

05:55We understand that elevated levels of unemployment or inflation

05:59can be damaging and painful for communities, families, and businesses.

06:04We will continue to do everything we can

06:06to achieve our maximum employment and price stability goals.

06:09Thank you, and I look forward to our discussion.

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