Fed’s Powell: The Fed's two goals are not yet in tension

Federal Reserve’s Chair Jerome Powell discussed the 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.

Key highlights from the Q&A session

• 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 judgement if the Fed's mandate do come into conflict.
• Could well be in a situation where need to make a difficult decision.
• High uncertainty leads to households and businesses stepping back from decisions.
• If risks were structurally higher, that would make us less attractive.
• Markets are processing the policy changes.
• Markets are orderly, functioning as would expect.
• Probably will see continued volatility.
• Not close to the point where the Fed would stop balance sheet runoff altogether.
• The slower the Fed goes, the smaller the balance sheet can get without disruptions.
• The Fed stands ready to supply Dollars to global central banks if needed.