Fed’s Powell: Effects of policy will likely move the Fed away from its goals

Federal Reserve (Fed) Chair Jerome Powell discussed the United States (US) economic outlook at the Economic Club of Chicago.

Key Quotes

Well positioned to wait for greater clarity before considering any changes to policy stance.
US economy ‘solid’ despite heightened uncertainty, downside risks.
At or near maximum employment, inflation a bit above 2% goal, has come down a great deal.
Growth likely slowed in first quarter of 2025 from last year’s solid pace.
Strong first quarter imports to weigh on GDP growth.
Sharp decline in business, household sentiment and elevated uncertainty, reflecting trade policy concerns.
Labour market solid, broadly in balance, not contributing to inflation.
PCE prices likely rose 2.3% in 12 months through March, core PCE estimated at 2.6%.
Administration’s policies still evolving, effects remain highly uncertain.
So far larger-than-expected tariffs likely mean higher inflation, slower growth.
Inflationary effects of tariffs could be more persistent, depends ultimately on inflation expectations.
Our obligation is to keep longer-term inflation expectations well-anchored.
May find ourselves in the challenging scenario in which dual-mandate goals are in tension.
If that occurs, we would consider how far economy is from each goal and potential time horizons for those gaps to close.

Effects of policy will likely move the Fed away from its goals.
Will be moving away from goals for the balance of this year, perhaps can resume next year.
Our role is to make sure this is a one-time effect.
The Fed’s two goals are not yet in tension, but the impulse is for higher unemployment and higher inflation.
It will be a difficult judgment if the Fed’s mandate do come into conflict.
Could well be in a situation where need to make a difficult decision.