Compiled by Ye Zhen, Wall Street News
Faced with tariff uncertainties, the Federal Reserve once again chose to sit on its hands. The message Powell repeatedly conveyed at the press conference was: wait and see.
On Wednesday, May 7, the Federal Reserve announced after the FOMC meeting that the target range for the federal funds rate would remain unchanged at 4.25% to 4.5%. This is the third consecutive monetary policy meeting where the Fed has decided to pause its actions. The Fed has cut interest rates for three consecutive meetings since September last year, with a total reduction of 100 basis points. The Fed has been suspending its actions since Trump took office in January this year.
Powell said in a question-and-answer session after the FOMC meeting that the tariff increases announced so far are far greater than expected. However, all of these policies are still evolving and their impact on the economy remains highly uncertain. As economic conditions change, the Fed will continue to determine the appropriate monetary policy stance based on future data, prospects, and the balance of risks.
Powell said that the economy has remained resilient and the policy positioning is correct. The Fed is now in a favorable position to wait and see. There is no need to rush to take action, and the cost of further waiting is quite low.
Regarding the recent divergence between soft and hard data in the United States, Powell said that looking back over the past few years, the connection between sentiment data and consumer spending has been weak, not a strong connection at all.
In response to Trump's call for a rate cut, Powell made it clear that this had no direct impact on the Fed's decision-making, and that the Fed's decision-making process was independent and based on economic data and analysis.
Powell also said he has never proactively requested a meeting with any president and will not do so in the future. He believes that the Fed chairman should not proactively seek a meeting with the president.
The following is a transcript of the Q&A session after the FOMC meeting:
Powell: Good afternoon. My colleagues and I remain focused on achieving our dual-mandate goals of maximum employment and stable prices for the benefit of the American people. Despite heightened uncertainty, the economy remains solid. Unemployment remains low, and the labor market is at or near full employment. Inflation has declined substantially but remains slightly above our 2 percent longer-run objective. To support our goals, the Federal Open Market Committee decided today to keep the policy rate unchanged. Risks to higher unemployment and inflation appear to have increased, and we believe that the current stance of monetary policy positions us to respond promptly to potential economic developments.
After a brief review of economic developments, I will say more about monetary policy.
GDP fell slightly in the first quarter, following a 2.5% increase last year. This reflects volatility in exports, which may be due to businesses importing goods before potential tariffs take effect. This unusual volatility complicates the measurement of GDP last quarter. Private domestic final purchases (PDFP), which excludes net exports, inventory investment, and government spending, rose a solid 3% in the first quarter. This was unchanged from the same period a year ago. In the PDFP, growth in consumer spending slowed, while investment in equipment and intangible assets rebounded from weakness in the fourth quarter. However, surveys of households and businesses showed a sharp drop in consumer confidence and increased uncertainty about the economic outlook, largely reflecting concerns about trade policy.
How these developments will affect future spending and investment remains to be seen. Labor market conditions remain solid. Job gains have averaged 155,000 per month over the past three months, and the unemployment rate has remained low at 4.2% and has remained in a narrow range over the past year.
Wage growth continues to slow, but remains above the rate of inflation. Overall, a range of indicators suggest that labor market conditions are broadly balanced and consistent with full employment expectations.
Labor markets are not a source of significant inflationary pressures. Inflation has retreated substantially from its mid-2022 peak but remains modestly elevated relative to our 2 percent longer-run objective. Total personal consumption expenditures (PCE) prices increased 2.3 percent in the 12 months through March, and core prices, excluding the more volatile food and energy categories, increased 2.6 percent. Indicators of inflation expectations have risen recently, as reflected in both market and survey-based measures. Respondents, including consumers, businesses, and professional forecasters, pointed to tariffs as a factor driving higher inflation.
However, beyond next year, most indicators of longer-term expectations remain consistent with our 2 percent inflation objective.
Our monetary policy actions are guided by our dual mandate of promoting full employment and price stability for the American people. At today's meeting, the Committee decided to maintain the target range for the federal funds rate at 4-1/2 to 4-1/2 percent and continue to reduce the size of its balance sheet. The new Administration is implementing major policy reforms in four different areas: trade, immigration, fiscal policy, and regulation.
The tariff increases announced so far have been far larger than expected. However, all of these policies are still evolving and their impact on the economy remains highly uncertain. As economic conditions evolve, we will continue to determine the appropriate monetary policy stance based on incoming data, the outlook, and the balance of risks.
If the announced policy of significantly increasing tariffs continues, it will likely lead to higher inflation, slower economic growth and higher unemployment.
The impact of tariffs on inflation could be short-lived, reflecting a one-time change in the price level. Or the inflationary effects could be more persistent. Whether this can be avoided depends on the size of the tariff effect, the time it takes for it to be fully passed through to prices, and whether it ultimately is effective in stabilizing long-term inflation expectations.
In fulfilling our obligation to keep longer-term expectations in check and to prevent one-time price increases from becoming persistent inflationary problems, we will balance our mandates of maximum employment and price stability, remembering that without price stability we cannot achieve the long-term, stronger labor market conditions that benefit all Americans.
We may find ourselves in a challenging situation with dual mandate goal setting. If this happens, we can consider how far the economy is from each goal and how long it will take to close those gaps. For now, we are in a good position to wait for greater clarity before considering adjusting our policy stance.
At this meeting, the Committee continued discussions on the five-year review of its monetary policy framework, focusing on inflation dynamics and their implications for monetary policy strategy. The review includes outreach and public activities involving a broad range of stakeholders, including "Fed Listens" events across the country and a research conference next week.
Throughout this process, we are open to new ideas and critical feedback, and will draw on lessons learned over the past five years to finalize our findings. We plan to complete the review by the end of the summer.
The Federal Reserve has two monetary policy goals: maximum employment and stable prices. We will continue to be committed to supporting full employment, inflation that consistently reaches our 2% target, and keeping long-term inflation expectations stable.
Our success in achieving these goals affects all Americans. We know that our actions impact communities, families, and businesses across the country, and everything we do is in service of our public mission.
Our federal government is doing everything it can to achieve its goals of maximum employment and price stability. Thank you. I look forward to your questions.
CNBC: Thank you for taking my question. A lot has happened since the last meeting. Tariffs have gone up and down, and a bill is moving forward in Congress. I wanted to ask you about the last part of your statement. Are you closer now to determining which target will need to be addressed first with urgency?
POWELL: Well, as we mentioned in our post-meeting statement, we judge that the risks to both higher employment and higher inflation have increased, of course, relative to the March data. So, that's what we can say.
I don't think we can predict how things are going to play out. I think there's a lot of uncertainty, for example, how and when the tariffs are going to be resolved, what the impact will be on the economy, growth, and jobs. I think it's too early to tell.
I mean, we ultimately think our policy rate is in a good place as we await further clarity on the tariffs and ultimately their impact on the economy.
CNBC reporter: Hearing you describe what you're looking for in terms of making a decision, it sounds like it's a long process before you feel comfortable, or the committee feels comfortable, to act on what the data is telling you.
POWELL: I don't think we know. You know, if you look at where we are. Our economy, if you look at the distortions in first quarter GDP, it's growing solidly, the labor market seems solid. Inflation is a little bit above 2%. So, it's a resilient and well-positioned economy, and our policy is modestly or moderately restrictive. About 100 basis points less restrictive than it was last fall. So we think that puts us in a wait-and-see mode. We don't think we have to rush. We think we can be patient. We'll watch the data. The data may move fast or slow. But we do think we're in a good position to let things unfold and get more clarity on the monetary policy response.
WSJ: Some people think that the current situation is very different, energy costs are down, the housing market is very different from four years ago, labor demand seems to be cooling, and wage growth is below 4%. What other factors do you think could cause inflation to rise, besides the rise in commodity prices this year?
POWELL: I think the underlying inflation outlook is good. As you can see, inflation is running a little over 2% right now, and the data on housing services and non-housing services are basically good, and housing services make up a large part of inflation. That part of inflation is moving steadily forward.
But there's so much we don't know. I think -- and we're in a good position to wait and see, that's it. We don't have to rush. The economy has been resilient, it's doing pretty well. We're positioned right. We think the cost of waiting further is pretty low.
So that's what we're doing. You know, we're going to see the administration's negotiations with a number of countries on tariffs. As the weeks and months go by, we'll have a better idea of where the tariffs are going to end up. As we start to see the severity of the situation, we'll know what the impact is. So, we think we'll learn as we go. I can't tell you how long that will take, but for now, it seems like we've made a pretty clear decision to just wait and see.
WSJ: When you say you don't need to rush, does that mean the outlook could change to the point where you'd need to change your position at the next meeting?
Powell: As I said, we feel comfortable with our policy stance. We think it's the right time to wait and see how things develop. We feel it's appropriate to be patient and not rush. Of course, when things develop, we have experience that we can act quickly when it's appropriate. But we think the most appropriate thing to do right now is to wait and see how things develop. There's too much uncertainty. If you talk to businesses, market participants or forecasters, everyone is waiting and seeing how things develop. Then we can better assess the appropriate path for the fourth round of monetary policy.
So, we're not there yet, and I can't really give you a time frame as things unfold.
Bloomberg: Many economists have raised the odds of a recession, with some noting that it would be harder for the Fed to cut rates early given the higher risk of rising inflation. So, given the outlook, do you still think there is a chance of a soft landing? What are the prospects for a soft landing?
POWELL: Well, I mean, let's look back to where we are now. Let's look back to where we are from 2024 to now. You know, we have unemployment that has been below 4% for over a year now, inflation is coming down, it's in the low to mid 2% range. We have economic growth at 2.5%. That's where we are in the economy right now.
Given the scope and size of the tariffs, we may well see an increase in inflation and unemployment risks. If that is the case, and if these tariffs are implemented at the levels currently envisioned (although that is not certain), it will be difficult to continue to make progress on our goals, and we may even see delays. I think in our philosophy, we have always been committed to our stated goals and have never deviated from them. But we may not be able to make significant progress on this front for at least the next year. Of course, it all depends on how the tariffs are ultimately implemented.
The problem is, we don't know. There's so much uncertainty about the size, scope, timing, and duration of the tariffs. So, there it is.
Speaking of preemption, I think you can look back at the rate cuts in 2019. I don't think what we did last fall was entirely preemptive. If anything, it was a little late. But we did cut rates three times in 2019. And the context was that the economy was weak and inflation was 1.6%. So, in that context, you can be preemptive. We've now had inflation above target for four years in a row. It's not much above target now, and we expect that if the context changes, there will be upward pressure on inflation. If you look at the forecasters, they all predict that inflation will rise.
So, that does create the situation that we are also receiving forecasts of a weaker economy, some even predicting a recession. We are not making or publishing any forecasts on that. We are not publishing any forecasts assessing the likelihood of a recession. But regardless, we cannot prepare in advance because we don't actually know how to properly respond to the data until we see more data.
The New York Times: How much weakness in the labor market and the overall economy would the committee need to see before it cuts rates again? Is it a certain rise in unemployment over a period of time, or a certain number of negative monthly employment reports? How do you make that assessment?
POWELL: First of all, we haven't seen that yet. We have an unemployment rate of 4.2%, a good labor force participation rate, good wages, and I mentioned earlier that the labor force participation rate is at a good level. So for the labor market, we will be watching the overall data. We will be watching the level of unemployment, watching the speed of change. We will analyze a lot of labor market data to understand whether things are indeed getting worse. At the same time, we will also be watching the other side of the task. We may need to balance between these two aspects, which is certainly a very difficult balance judgment.
The New York Times: On the question of balance, you mentioned that the committee considers how far the economy is from each goal and how long it will take to get back to that goal. But what does that mean in practice? To what extent is the assessment based on forecasts or on data?
POWELL: It's a bit of both. I mean, it's fair to say that this is going to be a complex and challenging judgment that we have to make. And that's not the situation that we're in right now. If there were a conflict between the two goals, like unemployment was rising in a troubling way and inflation was rising and so on. That's not the situation that we assume. But we would consider how far they are from the goals, how far they are expected to be from the goals, and how long it would take to get back to the goals. We would take all of that into account and make a difficult judgment, and that's built into our framework. It's been in our thinking. We haven't had to face this problem in a long time. So, again, it's a difficult judgment to make. And that's not the situation that we face today. We may never face it. But, you know, it's something that we have to keep in mind right now.
Fox Business News: We just released a CPI report showing that employment inflation rose month-over-month for the first time in three years. The employment report was solid. At the same time, we are facing new tariffs. Given this, should the Fed cut interest rates this year?
POWELL: It depends. I think you have to step back and realize that the reason we're in this position is because we need to see how things play out. There are circumstances where it's appropriate for us to cut rates this year. There are circumstances where it's not appropriate. We don't know that yet. Until we know more about how things are going to play out and the economic impacts on employment and inflation, I can't say with confidence that I know what the appropriate path is.
Fox Business News Reporter: So next, President Trump's call for you and the Federal Reserve to cut interest rates, how does this affect your decision today and the difficulty of your job ?
POWELL: It doesn't affect our work at all. So we're always going to do the same thing, which is to use our tools to promote maximum employment and price stability for the benefit of the American people. We're always going to look at the economic data, the economic outlook, the balance of risks, and that's it. That's all we're going to look at. So it's really not going to affect our work or how we do it.
Reuters: Thank you for your time. Given the first quarter GDP data and the complexity of the future situation, I would like to know what your intuition is about the basic direction of the current economy. Many of your colleagues have said that they feel that economic growth is slowing down. If so, can you predict the magnitude and degree of the slowdown? What does your intuition tell you about how the current situation is developing?
POWELL: Uncertainty about the path of the economy is extremely high, and downside risks have increased. As we noted in our statement, the risks of higher unemployment and higher inflation have increased. But those risks have not yet materialized. Really not. Those risks have not really manifested in the data. So, that's more compelling than what my gut would tell me, because I think, actually, it's obvious that what we should do is that we're in a good place, our policy is in a very good place, and what we should do is wait for further clarity.
Usually, things start to fall into place and the right direction becomes clear. That usually happens. It's hard to say what that will be right now.
At the same time, the economy is in a good place. Our policy is not -- you know, it's not highly restrictive. It's just slightly restrictive. It's 100 basis points less restrictive than it was last summer, so we think the economy is in a good place and it's best for us to wait and see to get a clearer picture of where the economy is going.
Reuters: I want to emphasize your statement that the economy is doing well right now, because the last time I looked through the Beige Book, there was a lot of negative information in it...Everyone is paying attention to the weak data, and you yourself mentioned that market sentiment is low. Some industries are starting to lay off employees, prices are rising in some places, and a lot of investment decisions are on hold. Doesn't this indicate a slowdown in the economy?
POWELL: It's very possible that it's going to happen, it's just not showing up yet. You know, we all look at various sentiment indicators and we read a lot of individual comments to get a better sense of what's going on. Overall, businesses and households are indeed worried and they are indeed delaying all types of economic decisions. Yes, if this continues and nothing happens to alleviate those concerns, then you can expect that the impact will eventually be reflected in the economic data. Maybe not overnight, but within a few weeks or months. That may be what's going to happen, it just hasn't happened yet. At the same time, there are certainly some events that could change this expectation, although those things have not yet appeared, but we can imagine that they will appear. In short, right now we are watching the situation very closely, as everyone else, but we don't see a lot of hard evidence in the current economic data.
By the way, consumers are still spending, credit card spending is still going on, and the economy is still healthy, even though there are some very negative sentiments gripping both individuals and businesses.
Bloomberg TV: The Federal Reserve was recently criticized by a former board member for using policy tools that make it unlikely that the Fed will take more aggressive action in the future. Do you think this criticism is fair? Is this something you are considering?
POWELL: Let me repeat the criticism.
Bloomberg TV: The Fed has used too many new tools to address the problem and has overdone it. Is the criticism based on the fact that the Fed has implemented quantitative easing and has exceeded your authority?
POWELL: Well, I mean, it's not really beyond the scope of our duties. I would say that we did some things, essentially, during a pandemic, when we were in a state of emergency, for a couple of years. And if people look back at what we did and say, "Hey, you could have done it better and differently," that's very fair and very welcome. One comment we heard a lot was that we could have explained quantitative easing better. We did think that our explanation at the time was specific to what was going on. I'm fully open to the idea that we could have explained it better.
A lot of people think we kept QE on for too long. I can tell you that we did so because we were concerned that the economy was still fragile and we didn't want to have a big tightening and financial conditions deteriorating, so we did keep QE on for a long time, then tapered, and then immediately went into a period of QT, which ended up tapering trillions of dollars. But I know that in hindsight, we certainly could have tapered earlier or faster. That's absolutely true.
But it's all very welcome. You know, we realized at the time that real-time decision-making is not perfect. These kinds of retrospectives are very important. And we are doing similar work as we review some of the issues.
Bloomberg Radio: Another part of the criticism is that you talk about some topics that are outside the call of duty, like climate change and trying to ensure that certain groups benefit from your economic policies in terms of jobs and so on.
POWELL: Okay. On climate, if you listen to me say it over and over again, we are not going to be climate policymakers. Our role on climate is very, very narrow. I think we really are. We are doing really little on climate.
You could say the little bit we did was too much. But I don't want to give any impression that we took into account climate and all the other things that we put a lot of time and energy into. We didn't. We were very, very narrow in scope.
We did one thing, we produced a guidance for banks, and then we did a stress analysis, a climate stress analysis, and that was it. We exited the network that was focused on the financial system. We didn't do much on climate. But -- I do think, and I've said this publicly several times, I think it would be really dangerous for us to try to take on a mandate like that because it would be very narrow to the scope of what we do. The risk is that if you go and do something that's not actually in your remit, then why are you independent? I think that's a very fair question. I do think that we're doing a lot less on climate than some people think. Anyway, that's --
Bloomberg Radio: Should you consider reducing unemployment rates for specific groups?
POWELL: We didn't do that. We said we never targeted unemployment for any racial or demographic group. What we said was that full employment was a broad and inclusive goal. And I think what we meant by that was that when we set a full employment goal, we would take the entire country into account. Of course, we never intended to target any particular group. But I think some people, you know, wanted to hear that. But that's not what we meant at all.
So, that's not the correct reading of us - and I understand that - you know, maybe people find that confusing, and we have to take that into account.
CBS News: Hi, Chairman Powell, thank you for taking our questions today. You just said that the economy is doing well, but the impact of tariffs is already showing up at the ports, and businesses large and small are telling us that they are feeling it. Most importantly, they are saying that consumers are feeling it too, and that the challenge is here and they can no longer wait and see. Where is the tipping point for the mainstream market? What specifically needs to happen to prompt a rate cut?
POWELL: Well, so we're not seeing a major economic impact in the data right now. What we're seeing is sentiment, people are worried about rising prices and things like that. So, people are worried about inflation right now. They're worried about the tariff hit. But in reality, that hit hasn't arrived yet.
So we're looking not only at sentiment data but at actual economic data as we assess what we should do. Remember, there are two effects here. One is that there will be a weakening of the economy, weaker economic activity, which will lead to higher unemployment. The second is that inflation is likely to rise. And again, the timing, the scope, the size, and the duration of these effects are very, very uncertain. So the appropriate monetary policy response is not clear at this point. And by the way, our policy is in a good place, so we think we can wait and wait until the right response is clear before we act. Mr. President, we really do know exactly what we should do.
So people are stressed and worried, but unemployment is not going up, job creation is good. Wages are good. You know, people are not being laid off -- there hasn't been a big increase in layoffs. There hasn't been any significant increase in unemployment claims, initially. So the economy itself remains solid.
CBS News: Just a quick follow-up. President Trump has now said he has no plans to remove you as president. How do you feel about that?
POWELL: I don't have any more to say on this question. I have basically finished talking about this question. Thank you.
AP: I just wanted to follow up. I think you said earlier that it's unclear what the Fed's interest rate decision will be later this year. There was guidance in March that there might be two rate cuts, and there are plans for two rate cuts this year. Has the guidance in the last press conference been superseded by the current situation?
POWELL: You know, we don't do a summary of economic projections at every meeting, but we do it every other meeting, so we didn't do it this meeting. And we don't do polls. So I really don't want to make a specific forecast about where we are in the economy right now.
In six weeks, we will have our June meeting, and then there will be another SEP meeting, and I would not venture to speculate today on what that will be.
Again, I would say that we think our policy rate is at a good level. We think that allows us to respond to potential developments in a timely manner. That's where we are right now. And, depending on how things develop, that could include raising -- sorry, lowering rates. It could also include, you know, maintaining the status quo. We just need to see how things develop and then make a decision.
AP: I want to follow up on that question. When you talk about how the Fed is dealing with rising unemployment and rising inflation, how do you think about the fact that addressing one problem might exacerbate the other? So, cutting rates to lower unemployment might exacerbate inflation, and vice versa. How do you deal with those challenges?
POWELL: You just pointed out exactly - this is the tension that we face in achieving our two goals. It's a very challenging problem. Sometimes one variable deviates from its goal much more than the other variable, and if that's the case, then you need to prioritize the goal that's farther away. Frankly, there have been times when - well, although there was not a real conflict between the two goals. But if you look back to 2022, it was clear that we needed to focus on controlling inflation. The labor market was also very tight at the time, so it was not really a trade-off.
I think you know what our framework document says. It says we look at how close each variable is to its target, and we also look at how long it takes to get there. So, it can be a very difficult call. But the data could be biased to some degree. I just don't think we know. The data could easily be biased one way or the other. And right now we just can't - there's no need to make a choice, and there's no real basis for it.
Politico: Congress is extending the tax cuts, and I know you've mentioned several times that the trajectory of the debt is unsustainable. But given that we're also talking about a slowing economy and possibly even a recession, I'm wondering if making spending cuts now is likely to significantly drag on growth?
POWELL: We don't give fiscal advice to Congress. They just -- we take our approach as a given and factor it into our models and our economic assessments. So, I don't want to speculate on that. I think we do know that the debt level is at an unsustainable level, on an unsustainable path -- not an unsustainable level, but an unsustainable path -- and Congress should figure out how to get us back on a sustainable path, and you know, we shouldn't be giving them advice.
Politico reporter: Do you think they should take macroeconomic conditions into consideration when looking at this issue?
POWELL: I don't think they need advice from me and from us on how to do fiscal policy. Just as we don't need advice from them on monetary policy.
Washington Post: When you spoke at Jackson Hole last year, you said you didn't want labor market conditions to cool further, when the unemployment rate was 4.2%, and it's the same now. Many forecasters are now predicting higher unemployment. How has your tolerance for labor market weakness changed from a year ago?
POWELL: It's a completely different story. What happened last year was that the unemployment rate went up almost a full percentage point over a six or seven month period. And every month it was like, "click, click," and there was talk everywhere about the downside risks to the labor market.
At the same time, the jobs data was getting weaker and weaker, so there was clearly concern about downside risks to the labor market. So, at Jackson Hole and then in September, we wanted to address that directly, we wanted to signal -- I mean, we've been paying attention to inflation for several years, and we also wanted to signal that we're paying attention to the labor market. Sending that signal was very important.
Fortunately, since then, the labor market and the unemployment rate have moved sideways and are within the range of mainstream maximum employment estimates, so concerns have been alleviated a lot. So, the unemployment rate is now 4.2%. I think the situation we had then is different. Now, as we mentioned in the statement, the risks are too high, and both inflation and unemployment have risen. We have to watch both of them very closely. We could be facing a situation where there could be a tropical wave in between the two. That's where we are now, and that's why I think the situation is different.
Washington Post reporter: How much higher can you tolerate in unemployment?
POWELL: I can't give -- I'm not going to try to give a specific number. I would say that we have to look at both of those variables right now. If one of them is more important than the other, which one is more important will determine how we make policy. If they're about the same distance apart, or they're equal or unequal, then we don't have to make an assessment. You know, the key to assessment is waiting.
So, I'm not going to try to be specific about what data we need to see. But if we do see a significant deterioration in the labor market, which is certainly one of our two variables, we would try to support that. You would hope that it would not occur in a period where inflation is getting very high. Again, we're just speculating. We don't know these things. We don't know anything. This is just hypothetical. We can only wait and see how things play out.
Financial Times: We have had some talks in Geneva with China and the US to clarify some issues, and many economists attach great importance to the information we hear from these talks. How important do you think these talks are in judging the future direction of the US economy? Similarly, some economists say that if we do not ease relations between China and the US, the US economy will soon face the risk of shortages and price increases like during the epidemic, and this will only take days, not weeks. So I would also like to hear your views on this.
POWELL: We were not involved in those negotiations at all. So I can't really comment directly. But I will say this: After the March meeting, there was a general public assessment of where the tariffs were going. The April 2 meeting showed that the tariffs were indeed much larger than the forecasts that I had seen and our own forecasts.
So now we're in a different phase -- we seem to be entering a new phase where the government is beginning negotiations with some of our important trading partners that may or may not materially change the status quo. So I think the final outcome will be very important. But we'll just have to wait and see. It certainly may change the status quo, and we're careful not to make final judgments about the future when the facts have changed.
Financial Times: Given that these tensions have led to a drop in freight volumes from China, are you also concerned that if this is not resolved quickly, we might start to see shortages and higher prices in the coming weeks?
POWELL: You know, I don't want to -- we shouldn't get verbally involved in the timing of these things. Yes, of course, we track all the data. We look at the shipping data. We understand all of that data. But ultimately this is a matter for the government. It's their responsibility, not ours. I know that, as you can see, they're in negotiations with a number of countries that could materially change the situation. So, we'll just have to wait and see.
Financial Times: Thank you. The volume of imported goods increased significantly in the first quarter. Do you think this decision will delay the impact of tariffs on inflation, and does it mean that it will take longer to reduce uncertainty?
POWELL: The decision we made today? Which decision?
Financial Times: Future decisions. The volume of imports and imported goods has increased significantly. Therefore, the impact on imported inflation may be delayed. So, what impact does this have on your future decisions?
POWELL: Okay. So, I mean, we think that -- imports have surged, very nicely, really to historic levels. And now that should be reversed in response to the tariffs, so it's exports minus imports. And the imports were huge. And so it was a very negative contribution to U.S. GDP, the annualized GDP in the first quarter as we know it.
So, this situation could reverse in the second quarter, where we will have an unusually large contribution, an unusually positive growth. And this is very likely to happen because of the sharp decline in imports.
You're also likely to -- it's quite possible that you're going to see a restatement of the first quarter numbers. It turns out that consumer spending is higher, inventories are higher, so you're going to see those numbers revised upward. And that might actually feed into the third quarter as well. So I think that whole process is going to make it a little bit more difficult to make a clear assessment of U.S. demand.
I mentioned private domestic final purchases, which excludes inventories, and government inventories -- government inventories. All in all, that's a clearer reflection of private demand. But it's also probably a little bit lifted by strong import demand to offset tariffs. That's probably an overstatement. PDP was up 3% in the first quarter, which is really a good number. I don't think it's going to affect our decision. I will say, though, that it's a little confusing, and we're probably more confused than the public in trying to explain it. It's complicated, and both GDP and PDFP are sending signals. It's a little confusing, but I think we understand what's going on and it's not really going to change where we are.
Axios: We talked about some of the potential layoffs, rising prices, and slowing economy that are evident in the soft data. I'm curious why the Fed needs to wait for that data to translate into hard data before making any kind of monetary policy decisions, especially when the hard data is not timely enough or could be affected by tariffs. Are you concerned that the soft data could be some kind of false alarm?
POWELL: No. Look at the state of the economy right now. The labor market is solid, inflation is low. We can be patient and wait for things to develop. Right now, there is no real cost to waiting.
And it feels like we're not sure what the right thing to do is. Inflation should be somewhat higher, unemployment should be somewhat higher. Those would require different responses. So, until we know -- it might require different responses. So, until we know more, we have the ability to wait and see. It seems like a pretty clear decision. Everybody on the committee is in favor of waiting. So, that's why we're waiting.
Axios: Just a quick follow-up. There was a time before when the sentiment expressed in the soft data did not translate into the hard economic data. How do you think about this when interpreting some of the milder survey data?
POWELL: I think, looking back over the last few years, the link between sentiment data and consumer spending has been a weak one, not a strong link at all.
On the other hand, we've never experienced a move of this speed and magnitude. So, we're not going to completely ignore this. But it's another reason to wait and see. You're right, there were a few years during the pandemic when surveys were very pessimistic and people were going out and spending. So, this could happen, and it probably will happen to some extent. We just don't know. But this is a huge change in market sentiment. So none of us are looking at this and saying we know for sure. We don't.
CNN: You mentioned earlier that you are monitoring shipping data, and we have seen from shipping data that imports from China to the Port of Los Angeles have dropped significantly. This has raised concerns about potential shortages. If tariffs do lead to serious supply chain disruptions, what tools does the Fed have to ensure that prices and inflation expectations do not get out of control?
POWELL: I mean, we don't have the tools to be good at dealing with supply chain issues. We simply don't. This is first and foremost a job for the government and the private sector.
We can use interest rate tools to support demand, more or less, but it's a very inefficient way to solve supply chain problems.
But we haven't seen inflation yet. Of course, we read the same reports and look at the same data as everyone else. Right now, we're seeing inflation moving sideways at fairly low levels.
CNN: Can I follow up with a question? President Trump has indicated that he may appoint a successor after your term as chairman expires next year. But I believe your term on the board will last until January 2028. Would you consider staying on the Fed board even if you no longer serve as chairman?
POWELL: I don't have anything to say about that. My focus and that of my colleagues is on, you know, trying to navigate this difficult period that we're in right now and trying to make the right decisions. We want to make the best decisions for the people that we serve. That's something that we think about day and night. It's a challenging situation and that's what we're 100% focused on right now.
Yahoo Finance: So far this year, your public schedule shows that you have not met with President Trump, even though former Presidents Obama, Bush, and Clinton all met with the Fed Chairman, and you also met with him during Trump's first term. Why haven't you requested a meeting with the President yet?
POWELL: I have never requested a meeting with any president and I never will. I will not do that. I have never had a reason to request a meeting. It has always been that way.
Yahoo Finance reporter: If there is a chance to get more information, would you be willing to meet with him?
POWELL: I've never proactively. It's always proactive -- you know, I don't think the chairman of the Federal Reserve should proactively seek a meeting with the president. Although there may be some people who have done that. But I've never done that. I can't imagine myself doing that. I think it's always the other way around, the president wants to meet with you, but it hasn't happened yet.
Yahoo Finance: A question about monetary policy. When you need to cut interest rates, how will you determine how much interest rates need to be lowered to keep inflation balanced given weak employment?
POWELL: You know, I think once you have a direction, a clear direction, you can judge the pace of action and so on. So, I think the really hard question is timing and when that clarity will come. Fortunately, as I mentioned, our policy is in a good place, the economy is in a good place, and we think it's very appropriate to be patient and wait for things to develop as we get more clarity on what we should be doing. Thank you very much.
