Jerome Powell on Tariffs, Inflation, and Interest Rates

Economic Outlook and Recession Fears

• 💡 The Federal Reserve Chair Jerome Powell stated that the economy is not in a recession despite some initial GDP report interpretations, noting that economic activity continues to expand at a solid pace.
• 🎯 Powell indicated that the Atlanta Fed's GDP Now model, forecasting nearly 4% GDP growth for Q2, does not suggest a recession.

Impact of Tariffs on Inflation

• 📈 A Federal Reserve study indicated that tariffs had a partial pass-through into consumer prices, contributing a small increase to core PCE prices.
• 🧐 A Harvard study suggested that prices have only modestly adjusted since tariffs were announced.
• 📊 Longer-term inflation expectations remain consistent with the Federal Reserve's 2% goal.

Interest Rate Policy and Future Paths

• 🔑 Governor Waller's pathway for rate cuts is contingent on average effective tariff rates remaining at or below 10%.
• 💬 Powell acknowledged that multiple paths for interest rate policy are possible, including cutting sooner if inflation disinflates or the labor market weakens.
• ⚠️ Conversely, rates might be moved later if inflation proves higher or the labor market remains strong.

Federal Reserve's Mandate and Policy Commentary

• ⚖️ Powell clarified that the Federal Reserve does not have a view on tariffs and it is inappropriate to comment on them, as it is not their job.
• 🎯 The Fed's primary focus is on inflation and maximum employment, and they comment on policies only when they have significant short- and medium-term implications for these goals.
• 🤝 Powell agreed with the sentiment that price stability is a primary consideration within the dual mandate, aligning with former Cleveland Fed President Loretta Mester's view.