EconoFACTS

April 16, 2025 | 14:24

Fed Chair Powell: Still "Well Positioned to Wait"

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

Jennifer has been wi... (Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

Jennifer has been wi... (Read more)

The last time we heard from Fed Chair Powell, it was a couple of days after Liberation Day. Financial markets were on a rollercoaster, and U.S. recession fears were on the rise. (Thankfully, there was the decent payroll report to lean on). The Chair spoke calmly, and warned that "it is now becoming clear that the tariff increases will be significantly larger than expected,”and "downside" risks of weaker growth had increased. But "we have time", as the data continued to show growth, and the labor market was balanced . Keep in mind that, shortly before he took the stage, he heard that President Trump had urged him to "CUT INTEREST RATES".

Well, that was nearly two weeks ago. Almost an eternity.

Since then, the temperature on the broader trade war has been dialled down a notch, thanks to the 90-day pause on reciprocal tariffs. But the temperature on the trade war with China has been cranked up to 10, with both countries now, supposedly, at the max tariff level: the U.S. has a 145% rate on products from China (or is it 245%?), and China has a 125% rate on products from the U.S. And, the weighted average tariff in the U.S. is still estimated to be around 26%, up from 2% at the start of the year. And both of these powerful countries are stubbornly glued to the sidelines, demanding "respect" before any talks can begin. Plus, inflation expectations have surged.

Meantime, the WTO warned that merchandise trade between the U.S. and China could plunge 81%, if both countries decouple from each other. In the words of WTO Director General Ngozi Okonjo-Iweala, "A decoupling could have far-reaching consequences if it were to contribute to a broader fragmentation of the global economy along geopolitical lines to two isolated blocks." Finally, to impress upon everyone the difficulties of making calls in this environment, a former executive director with the IMF, Hector Torres, said "forecasting a credible baseline scenario has become virtually impossible".

Today (April 16), Fed Chair Powell's prepared remarks to the Economic Club of Chicago were similar. The two lines which yours truly found fascinating were:

"survey measures of longer-term inflation expectations, for the most part, appear to be well-anchored"
"For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance."

Fascinating given the jump in inflation expectations and that the 'no hurry' theme is still playing out. This is a truly patient central bank, given all the moving parts. But his bottom line was that the Fed is waiting to see what the policies are before they can determine the economic effects.

Topics:

On immigration... unemployment has been stable because the growth of workers has been stagnant, but demand for workers has also fallen. He doesn't seem too concerned about the longer-term impact on inflation from immigration policies
Conflicting goals..... If they are faced with higher inflation and slower growth, when there is "tension" between both goals, well, it will be a "difficult judgement" for the Fed.
Uncertainty.... That in itself will cause households and business investment to take a step back. And if the uncertainty remains high, that would make for a difficult environment, and would weigh on investment and that would make the U.S. less attractive as a jurisdiction.
Fed Put... Will the Fed intervene if the stock market plummets? "No... markets are processing what's going on ... where is it going to land? We don't know. Until we know, we can't make informed assessments. Markets are struggling with a lot of uncertainty, which means volatility."
Bond market volatility ...high uncertainty is the cause of that
Bank reserves ... are still abundant
Ready to supply USD to central banks, if needed? Absolutely.
Federal debt... It is on an unsustainable path, not an unsustainable level. It's about the trajectory. It needs to be addressed, sooner rather than later. The fastest growing parts is medical and interest payments. Can only be dealt with on a bipartisan basis.
What does the Fed Chair do at the office? "Do you feel like a God?" ... He loves his job, and it is "quite humbling". He mentioned some "critics", so no one feels like a God.
What data does he look at? Payrolls, part rate, wages, inflation data, global developments, financial markets (FX, equity, fixed income). Talks to outsiders to get a sense of what they're dealing with. Anecdotal data helps.
How can the Fed be pressured? "Our independence is a matter of law. Not removable unless for cause." He drummed home the Fed's independence. No political influence.

Bottom Line: A range of topics were covered during the 30 minute Q&A but the main takeaway hasn't changed. The Federal Reserve is not rushing to lower rates. Not yet.