Federal Reserve Chairman Jerome Powell stated on Friday that the central bank will take a cautious approach before making further adjustments to interest rates, as President Donald Trump’s new policies on trade, immigration, fiscal spending, and regulation introduce significant uncertainty into the economy.
Speaking at the U.S. Monetary Policy Forum in New York, Powell emphasized that the Fed is in no hurry to change rates, as it assesses the long-term impact of these policies. He noted that the White House is implementing significant changes, but their overall effect on economic growth and inflation remains unclear.
Markets Expect Rate Cuts, But the Fed Signals Caution
Financial markets have already priced in three rate cuts by the end of 2025, with traders anticipating the first reduction in June, according to CME Group’s FedWatch tool. However, Powell’s comments indicate that the Fed will remain in a wait-and-see mode, rather than following market expectations.
He reaffirmed that the Fed’s approach is not on a predetermined course, but instead focused on balancing risks and uncertainties. Powell also pointed out that the labor market remains strong, and while inflation is slightly above the Fed’s 2% target, the central bank expects it to decline gradually.
Inflation and Tariffs Remain Key Concerns
Powell acknowledged that Trump’s trade tariffs have contributed to inflation concerns, with consumer price data showing a 2.5% annual increase, or 2.6% excluding food and energy. He admitted that achieving stable inflation has been challenging, and further price volatility is expected.
Separately, Fed Governor Adriana Kugler, speaking in Portugal, highlighted the risk of persistent inflation and suggested that keeping interest rates unchanged for a longer period may be necessary.
Strong Job Market Supports Fed’s Patient Approach
On the same day as Powell’s speech, the U.S. Labor Department reported that the economy added 151,000 jobs in February, slightly below forecasts. However, Powell described the labor market as solid and well-balanced, with wage growth outpacing inflation.
Despite rising uncertainty around trade and economic policies, Powell reassured that the Fed is well-positioned to respond as needed. Investors will now closely watch upcoming inflation data and Trump’s economic moves to gauge the Fed’s next steps.
