Author: Jin Shi Data
Federal Reserve Chairman Powell reiterated in his latest speech on Friday the Fed's commitment to maximizing employment and stabilizing inflation (2% target), noting that the current economy is robust but faces uncertainties from trade policies. The labor market is balanced, inflation is slowing but still under pressure, and monetary policy will remain cautious and flexibly adjusted based on data to prevent short-term shocks from evolving into persistent inflation. He repeatedly mentioned uncertainties, indicating the need to continue observing and waiting for more clarity. Regarding tariffs, he stated that tariff increases would be larger than expected, and their economic impact could be more significant than anticipated.
Full Text of Powell's Speech
Thank you for inviting me today. Monetary policy is more effective when the public understands what we are doing and why. Through your work, journalists like you help promote deeper understanding. I believe many of the journalists present have questions they want to ask. Before answering some questions, I will briefly outline the economic and monetary policy outlook.
At the Federal Reserve, we focus on achieving the dual mission goals granted by Congress: maximizing employment and stabilizing prices. Despite high uncertainty and increased downside risks, the economy remains in good condition. The latest data shows robust economic growth, a balanced labor market, and inflation rates close to but still above our 2% target.
Recent Economic Data
After years of robust growth, many forecasters expect growth to slow this year. Preliminary first-quarter GDP data will be released later this month. Limited hard data is consistent with a slow but still robust growth outlook. Meanwhile, household and business survey reports show declining expectations and increased uncertainty about the future. Survey participants noted that new federal policies, especially trade-related policies, are having an impact. We are closely monitoring the contradictions between these hard and soft data. As new policies and their potential economic impacts become clearer, we will better understand their effects on the economy and monetary policy.
From multiple indicators, the labor market appears to be roughly balanced and not a significant source of inflationary pressure. This morning's employment report showed a 3.2% unemployment rate in March, remaining low since early last year. In the first quarter, non-farm employment averaged 150,000 job additions. Low layoff rates, moderate employment growth, and a slowing labor participation rate collectively help maintain a stable unemployment rate.
Turning to the other aspect of our dual mission, inflation has sharply declined from the pandemic peak in 2022. This reduction was achieved without experiencing the typical high unemployment pain associated with tight monetary policy. Recently, inflation has made progress towards the 2% target, but this progress has slowed. In February, the Personal Consumption Expenditures (PCE) price index rose 2.5% year-on-year. The core PCE price index, excluding the volatile food and energy categories, rose 2.8%. Looking ahead, higher tariffs will gradually affect our economy and may push inflation up in the coming quarters. Market expectations and survey data show short-term inflation expectations have risen. By most measures, long-term inflation expectations (expectations for several years ahead) remain stable and consistent with our 2% inflation target. We remain committed to sustainably returning inflation to the 2% target.
Monetary Policy
Regarding monetary policy, we face a highly uncertain outlook with risks of higher unemployment and higher inflation. The new administration is implementing significant policy changes in four different areas: trade, immigration, fiscal policy, and regulation. Our monetary policy stance is prepared to address these risks and uncertainties and will be adjusted as we gain a clearer understanding of policy changes and their potential economic impact. It is not our responsibility to comment on these policies. Instead, we assess their potential impacts, observe economic behavior, and adjust monetary policy accordingly to best achieve our dual mission goals.
We have clearly stated that assessing the potential economic impact of tariff increases is very difficult until we have more information about tariff details, such as tariff targets, rates, duration, and potential retaliatory measures by trading partners. Currently, despite high uncertainty, it is now clearly foreseeable that tariff increases will be larger than expected. The economic impact may also be more significant than anticipated, including higher inflation and slower growth.
The scale and duration of these impacts remain unclear. While tariffs are highly likely to cause at least temporary inflation increases, they may also lead to more lasting effects. The key to avoiding such an outcome is maintaining stable long-term inflation expectations, the scale of impacts, and the time these impacts take to pass through to prices. Our responsibility is to ensure long-term inflation expectations remain stable and prevent one-time price level increases from becoming a persistent inflation problem.
We will continue to carefully monitor upcoming data, changes in economic prospects, and risk balances. Our policy stance will not be easily adjusted until we have a clearer understanding of the economy's future prospects. It is too early to conclude the appropriate path of monetary policy.
Closing Remarks
We understand the benefits of a robust economy—allowing workers to find jobs and keeping inflation low and predictable. We also understand that high levels of unemployment or inflation can harm and cause pain to communities, families, and businesses. This is why the Federal Reserve will continue to do our utmost to achieve the goals of maximum employment and price stability.
Thank you. I look forward to your questions.
