Federal Reserve Keeps Rates Steady, Cites Trade Uncertainty for Inflation Concerns

In a recent press conference, the Federal Reserve maintained its benchmark interest rate, with Chairman Powell emphasizing that the current economic situation in the United States is stable. However, he noted that the ongoing trade policy adjustments and the imposition of tariffs could push up prices, potentially leading to a more persistent impact on inflation. Powell reiterated that the overall impact of tariffs, their duration, and the timing of their full effect remain highly uncertain. He also expressed satisfaction with the current labor market conditions, stating that the labor market is not currently calling for a rate cut.

Powell highlighted that the Federal Reserve's policy stance is "moderately restrictive" and well-positioned to respond flexibly to future data changes. He stressed that monetary policy must be forward-looking and not merely reactive to current data. Powell mentioned that the Fed is closely monitoring how confidence affects spending by both businesses and consumers. Recent surveys indicate a slowdown in consumer spending growth, with increased uncertainty primarily due to trade policy concerns.

Regarding employment, Powell noted that the current unemployment rate of 4.2% is at the lower end of the long-term natural unemployment rate estimate, indicating a robust labor market. He also pointed out that real wages are still rising, although the pace of job growth has slowed. Powell emphasized that the labor market is not a significant driver of current inflation pressures.

On the economic outlook, Powell stated that the U.S. economy remains "resilient," with GDP fluctuations driven by technical issues related to net exports. Despite recent declines in consumer and business confidence, Powell attributed this to concerns over trade policies. He also mentioned that the Fed is closely monitoring the impact of tariffs on inflation, acknowledging that the transmission of tariff costs through the supply chain is complex and uncertain. Powell reiterated that the Fed's dual mandate of achieving maximum employment and stable prices may face tensions due to tariff impacts.

Powell also addressed the potential long-term effects of artificial intelligence (AI) on the job market, noting that while AI has the potential to revolutionize industries, its impact on employment is still uncertain. He emphasized that the Fed is not making definitive judgments about AI's effects at this time but will continue to monitor developments closely.

In response to questions about the Fed's communication strategy and potential changes to its policy framework, Powell stated that the Fed is continually evaluating and updating its framework to reflect economic realities. He also addressed concerns about the potential impact of geopolitical events, such as the Israel-Iran conflict, on the economy, noting that while energy prices could rise, historical data suggests that such events typically do not have long-term effects on inflation.

Powell concluded by reiterating that the Fed's current policy stance is appropriate given the economic uncertainties and that the Fed will continue to monitor data closely to make informed decisions in the future.