Fed Waiting for ‘Greater Clarity’ on Trump Actions Before Making Rates Decisions: Powell

‘We are focused on separating the signal from the noise as the outlook evolves,’ said Fed Chair Jerome Powell.

Federal Reserve Chairman Jerome Powell testifies before the Senate Committee on Banking, Housing, and Urban Affairs on Capitol Hill in Washington on Feb. 11, 2025. Madalina Vasiliu/The Epoch Times

Federal Reserve Chair Jerome Powell did little to soothe market jitters over President Donald Trump’s trade policy changes, vowing a wait-and-see approach.

Powell said on March 7 that the U.S. central bank could afford to be patient and wait to determine the effects of the new administration’s actions before cutting interest rates.

As the White House moves forward with “implementing significant policy changes” to fiscal, immigration, regulations, and trade, the Fed will “wait for greater clarity” before crafting a response.

“It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy,” Powell said in a prepared speech for the U.S. Monetary Policy Forum, adding that policymakers are parsing through incoming information.

“We are focused on separating the signal from the noise as the outlook evolves,” he added. “We do not need to be in a hurry, and we are well-positioned to wait for greater clarity. Policy is not on a preset course.”

Powell alluded to the various projections anticipating inflationary effects from the president’s tariffs.

However, he cautioned that there remains plenty of uncertainty surrounding the specifics of Trump’s levies, from what will be affected to how long they will be implemented.

Still, Powell noted, these tariffs are likely to affect the broader economy and impact importers, exporters, retailers, and “to some extent the consumers.”

He recommended that economic observers examine what occurred in 2019 when the Fed navigated various developments in tax, regulatory, and trade policy.

At the time, the U.S. central bank pulled the trigger on three interest rate cuts, defying market forecasts of policy tightening.

“It’s really the effect of all of these policies that matter for our policy,” the Fed Chair said. “It’s not simply what’s happening with tariffs. It’s what’s happening with growth and all the other things as a result of these broad changes in economic policy.”

Powell’s comments come after his colleagues, including Fed Gov. Adriana Kugler, delivered end-of-week prepared remarks.

Speaking in Portugal at the Conference on Monetary Policy Transmission and the Labor Market, Kugler believes the institution will keep monetary policy steady because of recent inflation data.

“Given the recent increase in inflation expectations and the key inflation categories that have not shown progress toward our 2 percent target, it could be appropriate to continue holding the policy rate at its current level for some time,” Kugler said in a speech.

Last month’s personal consumption expenditure (PCE) price index—the central bank’s preferred inflation gauge—eased for the first time since September, slowing to 2.5 percent.

However, other inflation reports continue to show or signal a reacceleration in inflation.

Additionally, consumer surveys suggest that the public’s inflation fears remain prevalent.

The February University of Michigan’s Consumer Sentiment Index highlighted that the one-year inflation outlook climbed to 4.3 percent.

The Cleveland Fed’s Inflation Nowcasting model suggests the consumer price index’s (CPI) annual inflation rate will dip to 2.8 percent next week.

Looking ahead to next month’s CPI data, the annual inflation rate could tumble to 2.5 percent.

The Fed is expected to leave its easing cycle on hold at its next two-day policy meeting later this month.

According to the CME FedWatch Tool, investors anticipate the next quarter-point reduction to the benchmark interest rate in June or July.

‘One-Time Price Adjustment’

The White House has dismissed inflationary concerns emanating from the president’s tariffs that could raise consumer prices.

Treasury Secretary Scott Bessent instead thinks the import duties could cause a “one-time price adjustment.”

Donald Trump's nominee for Treasury Secretary, Scott Bessent, testifies before the Senate Committee on Finance on Capitol Hill in Washington on Jan. 16, 2025. Madalina Vasiliu/The Epoch Times

“Look, can tariffs be a one-time price adjustment? Yes. I would hope that the failed team transitory could get back together and think that nothing is more transitory than tariffs if it’s a one-time price adjustment,” Bessent said in a question-and-answer session with Fox Business Network host Larry Kudlow at a March 6 Economic Club of New York event.

His “transitory” quip was about the previous administration claiming that inflation would be short-lived.

Additionally, Bessent took a shot at critics who say tariffs are a tax and inflationary.

“So, you’re saying taxes are inflationary, which I like to challenge a lot of my Democratic friends to,” he said.

While taxation can influence inflation, other factors are involved.

For example, if the government raises taxes, businesses and consumers will have less disposable income to spend or invest, reducing aggregate demand for goods and services. This is known as demand-pull inflation.

Economists have debated the potential inflation fallout from the president’s tariff plans.

RBC economists predict prolonged tariffs will raise consumer prices, with goods prices facing upward pressure.

“We estimate that inflation could increase by 50 bps by year-end if tariffs are enforced beyond 3 months,” they said in a March 5 note.

However, like the initial round of tariffs during Trump’s first term, companies might be reluctant to pass higher costs onto customers.

The Fed’s latest Beige Book—a summary of economic conditions across the U.S. central bank’s 12 districts—signaled that businesses are apprehensive about shifting the tariff-fueled cost burdens to their clients.

“If this is the case, tariffs would crimp profits before affecting consumers,” said Jeffrey Roach, the chief economist for LPL Financial, in a note emailed to The Epoch Times.

In the end, the Fed is in a difficult position, Roach notes.

“Slower growth and fragile trade relations put the Fed in a difficult position as they wait for inflation to decelerate,” he said.