US Fed in wait-and-see mode; uncertainty around Trump tariffs could inflict lasting economic damage, says Jerome Powell

US Federal Reserve Chair Jerome Powell said on Wednesday that the central bank would remain patient and wait for more clarity on the economic outlook before considering any changes to interest rates, Reuters reported.

Speaking at the Economic Club of Chicago, Powell also warned that President Donald Trump’s tariff policies could further distance inflation and employment from the Fed’s mandated targets.

“For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Jerome Powell said.

Powell highlighted the risk of a complex scenario in which tariffs raise consumer prices while simultaneously dampening economic growth and potentially weakening the labor market. This, he cautioned, could result in inflation and employment deviating further from the Fed's goals, Reuters reported.

“I do think we'll be moving away from those goals, probably for the balance of this year. Or at least not making any progress, due to the impact of tariffs that so far have proved larger than even the most severe scenarios in Fed planning estimates,” Powell said.

Describing the administration’s tariff plans as “fundamental changes,” Powell noted that they offer little historical precedent for businesses or economists to model, Reuters reported. 

“These are very fundamental policy changes. There isn’t a modern experience of how to think about this,” Powell said.

He added that the US began the year near full employment, with inflation expected to ease toward the Fed’s 2% target — an outcome that had seemed unlikely to many observers.

Powell said “the level of the tariff increases announced so far is significantly larger than anticipated” and that the lingering uncertainty around tariffs could inflict lasting economic damage. With Trump’s tariffs putting the economy on a path toward weaker growth, higher unemployment and faster inflation — all at the same time — the Fed is also facing a situation it hasn’t dealt with in about half a century.

Outlook on Markets

Powell attributed recent market volatility to a rational adjustment to the Trump administration’s abrupt shifts in trade policy, rather than a sign of financial instability warranting central bank intervention.

He said he felt bond and stock markets were functioning well, showing investors adapting to the new policy landscape.

Responding to a question about the existence of a so-called “Fed put” — the idea that the central bank would intervene to support markets in the event of a sharp downturn — Powell rejected the notion.

“Markets are struggling with a lot of uncertainty, and that means volatility,” he said. “But having said that, markets are functioning... they’re orderly and they’re functioning just about as you would expect them to function.”

(With inputs from Reuters)

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.