ARLINGTON, VIRGINIA — The Trump administration's new policies on tariffs, immigration and government spending undeniably will have an effect on the U.S. economy this year, but until the consequences are understood fully, the Federal Reserve is taking a wait-and-see approach on interest rates, said Jerome Powell, the central bank's chair.
"It's just too soon to say what the appropriate monetary policy response to these new policies will be," Powell said. "Fast forward a year from now, the uncertainty will be much lower and the effects of the policies will be clear."
The Fed remains focused on its congressional dual mandate to maintain price stability and maximum employment, Powell said Friday in remarks to the Society for Advancing Business Editing and Writing, a business journalists' association, at its annual conference.
"We will continue to carefully monitor the incoming data," he said. "We are well-positioned to wait for greater clarity."
Powell ticked off a list of economic data that he said shows the U.S. remains "still in a good place," including
He cited
The question is what will happen to these economic indicators once President Trump's tariffs take hold, and once the administration tamps down immigration, both legal and illegal, as well as making other major changes to government spending and the federal workforce.
Powell noted that, although the Fed does not comment on political events, the tariffs as announced were more than economic forecasters had anticipated. "Tariff increases will be significantly larger than expected and the same is likely to be true of economic effects," he said, noting that the
One issue that's come up in surveys of consumer sentiment is that although inflation has moderated since its pandemic highs over the past five years, prices remain elevated, so consumers continue to pay more. "Prices don't go down," Powell said. "They're not happy about it."
This can be a challenge for economic growth, since "the economy is overwhelmingly driven by consumer spending," he said. But households don't always moderate their spending even when they have doubts about their economic future: "Sometimes the surveys are very negative and they keep spending," Powell said. "People spent right through the pandemic and they kept spending right through this period of higher inflation."
Powell rejected the idea that the U.S. finds itself in the same place as it did during the 1970s, when the economy struggled with both high inflation and unemployment, leading to stagflation. "That's not what we're seeing right now," he said.
Powell's term as Fed chair is up in February and his seat on the board of governors expires in 2028, but he reiterated that he has no plans to step down: "I fully intend to serve all of my term."
In response to a question, he also linked his trademark purple necktie to the desire to choose neither blue nor red, to avoid the perception that he supports one of the political parties. "We're not nonpartisan; we're strictly nonpolitical," he said. "Purple is a good color for that."
