Unusual Uncertainty

The Fed Chair believes that current policies are creating an unusually high amount of uncertainty

Summary: The Fed held interest rates steady and signaled that it remains in no hurry to lower them. Like many others in the world, the Fed is focused on the Trump administration's policies and their impacts on the US economy. Powell believes that the policies are creating an unusually high amount of uncertainty for the Fed. Meanwhile, the policies may also be creating unintended consequences for the Trump administration. There's increased energy for economic competition in international markets. European capital markets are outperforming US markets year to date and in China tech companies are gearing up to win the AI race.

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Macro:

The Fed is contending with unusual uncertainty
"[Making SEP projections was] an admittedly challenging exercise at this time, in light of considerable uncertainty...While these individual forecasts are always subject to uncertainty, as I noted, uncertainty today is unusually elevated...What would you write down? I mean, it's just, it's really hard to know how this is going to work out." — Federal Reserve Chair Jerome Powell

The FOMC is focused on Trump's policies
"The new Administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high." — Federal Reserve Chair Jerome Powell

The policies are expected to drive inflation
"Some near-term measures of inflation expectations have recently moved up. We see this in both market and survey-based measures. And survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor... Inflation has started to move up now, we think partly in response to tariffs, and there may be a delay in further progress over the course of this year." — Federal Reserve Chair Jerome Powell

But inflation is expected to be "transitory"
"It can be the case that it's appropriate sometimes to look through inflation if it's going to go away quickly without action by us, if it's transitory. And that can be the case in the case of tariff inflation... So, I think, I think that's kind of the base case." — Federal Reserve Chair Jerome Powell

Weaker growth is expected to offset higher inflation
"You come in and you see, broadly speaking, weaker growth but higher inflation. And they kind of balance each other out." — Federal Reserve Chair Jerome Powell

And so Powell thinks the Fed can afford to wait
"We think our policy is in a good place to react to what comes, and we think that the right thing to do is to wait here for, you know, for greater clarity about what the economy is doing." — Federal Reserve Chair Jerome Powell

It's different this time
"We're well-aware of what happened obviously with the Pandemic inflation. But I mean, we have to look at this as a different situation, there are differences and similarities. I mean it's a different time, you know." — Federal Reserve Chair Jerome Powell