A look at the Fed Chair Powell’s comments categorized by topic
1. Monetary Policy & Rate Decisions
- We are not in any hurry to move on current rates.
- We are at a place where we can cut or hold at what is clearly a restrictive stance of policy.
- On balance, people wrote down similar forecasts to last time, and it’s hard to know how this will work out; policy can move in the direction we need to.
- Appropriate to wait for further clarity, and costs of waiting are very low.
- If an inflationary impulse will go away on its own, it is not the right thing to tighten policy.
- If Fed’s goals need to be balanced against each other, it is challenging; that’s not the current situation.
2. Inflation & Tariffs
- Inflation is still running in the 2%s, with a pickup from tariffs.
- Strong goods inflation readings in recent two months, if persistent, must do with tariffs.
- Tariffs tend to bring growth down and inflation up.
- We will know in a couple of months if higher goods inflation in the first two months of the year was from tariffs.
- Looking for direct evidence that particular pieces of inflation are caused, or not caused, by tariffs.
- Will be difficult to know how much inflation comes from tariffs; goods inflation moved up, and tracking that back to tariff increases is challenging but clearly tariffs are part of it.
- Too soon to say if it will be appropriate to look through effects of tariff inflation.
- Will depend on tariff inflation moving through quickly and on inflation expectations being well-anchored.
- Base case is that there is no policy signal from tariffs, but cannot know that.
- Inertia in changing forecasts amid high uncertainty.
- Some of the flatlining in Fed projections for core inflation this year is from tariffs.
- Housing services inflation has been behaving well and moving down in a good way.
- Base case is that inflation will be transitory; will depend on inflation expectations staying anchored.
- I am not dismissing rising short-term inflation expectations, but there’s no story of an increase in long-term expectations.
- Longer-term inflation expectations are mostly well-anchored; will be watching them carefully.
- We were getting closer to price stability, but with the arrival of tariff inflation, further progress will be delayed.
3. Economic Outlook & Market Sentiment
- Sentiment has fallen off, but the economy seems to be healthy.
- People are unhappy, and they are not wrong, that prices went up a lot.
- Drop in sentiment is partly due to big policy changes by the administration.
- Broadly speaking, forecasts point to weaker growth and higher inflation, which call for different responses. They cancel each other out.
- If soft data effectively becomes hard data, we will know very quickly, but we don’t see that yet.
- Fed wants to focus on hard data.
- Fed watches for material changes to financial conditions that are persistent.
- Policymakers widely raise their estimate of the risks to Fed goals.
- Forecasters have raised the possibility of a recession somewhat, but it is not high.
4. Balance Sheet & Liquidity
- People came to be strongly in favor of slowing balance sheet shrinkage.
- This was a good time to slow balance sheet shrinkage.
- We said we will stop balance sheet shrinkage somewhat above the level that is ample.
- We are still far from that level and will approach it more slowly.
- Flows in and out of the Treasury General Account (TGA) got us thinking about balance sheet reductions.
5. Labor Market & Employment
- Hiring rate and layoffs are both low; a meaningful increase in layoffs would probably translate quickly into unemployment, and the overall labor market is in balance.
- Layoffs are meaningful to people involved, but not at a national level.
Summary
Powell’s comments suggest the Fed is in a wait-and-see mode, with no urgency to adjust rates as uncertainty remains high. Inflation remains in focus, with tariffs playing a role in pushing prices higher, but long-term expectations remain anchored. The Fed sees sentiment declining but still views the economy as solid, with no immediate recession risk. There is a broad consensus to slow balance sheet reductions, and the labor market remains stable, though policymakers remain cautious about future risks.
This article was written by Greg Michalowski at www.forexlive.com.