In remarks at the Fed’s annual summit in Jackson Hole, Wyo., Powell said the Fed needs to determine whether the impact of Trump’s tariffs, immigration restrictions and tax cuts will be temporary, or lead to permanent changes in the U.S. economy.
Even so, Powell said, the weakening of the U.S. labor market could push the Fed to slash interest rates at a point to be determined.
“There is significant uncertainty about where all of these polices will eventually settle and what their lasting effects on the economy will be,” Powell said.
The Fed, Powell said, is facing two conflicting trends: rising inflation, which would call for higher rates, and a weakening labor market, which would lend support for cuts.
“In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside — a challenging situation. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate,” Powell said.
Powell said that while the impact of Trump’s tariffs is “clearly visible,” it is not yet clear if they will lead to a one-time increase in prices or trigger a longer-term inflation surge.
“We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts,” Powell said.
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