Today's Edition
(REUTERS)
With U.S. President Donald Trump's erratic tariff policy injecting tremendous uncertainty into the economic outlook, Federal Reserve Chair Jerome Powell on Wednesday will for the second time in less than two weeks weigh in with his sense of what's in store for Americans on inflation and jobs, and what the central bank may do about it if they veer off course.
Powell last spoke on April 4 in what proved to be an in-between period - two days after Trump announced a global baseline tariff of 10% on most U.S. imports and hefty additional levies on goods from dozens of key trading partners, and five days before Trump abruptly put the latter duties, except China, on hold for 90 days in the face of the ensuing financial market upheaval.
In that fleeting moment, Powell had already assessed that tariffs would likely mean a challenging mix of higher inflation and slower growth, potentially forcing the Fed to choose which to fight. Still, he voiced essentially a wait-and-see approach, saying "It is too soon to say what will be the appropriate path for monetary policy."
Just how much Trump's temporary walk back - and the accompanying extension of uncertainty - move Powell beyond that, if at all, will be the centre of attention for investors battered by days of the greatest volatility in global financial markets since the onset of the pandemic five years ago.
Global stocks were sent into a tailspin on fear the bigger-than-expected set of levies would trigger an economic downturn. Turmoil gripped the bond market, where 10-year Treasury yields surged by the most in decades and contributed to Trump's abrupt about-face on most of his "reciprocal" tariffs even as he ratcheted up levies on imports from China to a searing 145%.
Powell is due to deliver prepared remarks at 1:30 p.m. EDT (1730 GMT) before the Economic Club of Chicago and will field questions from a moderator as well.
Complicating his communications challenge is the fact that more tariff news is on tap. After Trump unexpectedly exempted some electronics from tariffs for now, his administration has also commenced investigations expected to result in new levies on pharmaceuticals and semiconductors.
Earlier this week Fed Governor Christopher Waller said that if Trump continues to peel back tariffs to a lower baseline, the central bank would do well to hang tight on interest rates in the first half of this year and perhaps cut gradually in the second half as tariff-elevated inflation subsides. If Trump sticks to higher tariffs, Waller said, the unemployment rate could jump and the Fed would need to cut more aggressively.
Other Fed policymakers have been more hawkish, focusing on signs that short-term inflation expectations have surged and could, as St. Louis Fed President Alberto Musalem put it, "seep" into longer-term expectations, potentially forcing the Fed to keep rates high or even raise them further.
It's not clear which view is closer to Powell's, or in how much detail he might articulate which way he leans. Meanwhile, recent data shows inflation is slowing rather than reigniting, and the labour market is holding up even as the economy loses momentum.
