Fed Remains in Wait-And-See Mode, Markets Processing Policy Shifts

• U.S. Federal Reserve (Fed) Chair Jerome Powell said on Wednesday, April 16, 2025, that the Fed would wait for more data on the economy's direction before making any changes to interest rates and characterised recent market volatility as a logical processing of the Trump administration's dramatic shifts in tariff policy.
• "For the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance," Powell said in a speech to the Economic Club of Chicago.
• In a later question and answer session, he noted a potentially tough situation developing for the Fed in which prices are pushed higher by tariffs while growth and possibly the labour market weaken, leaving both inflation and employment further away from the Fed's desired levels. The Fed tries to keep inflation stable at 2% while sustaining maximum employment.
• "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 have proved larger, at least as announced, than even the most severe scenarios pencilled into initial Fed planning estimates, Powell said.
• He called Trump's tariff plans "fundamental changes" that don't provide businesses and economists with any clear parallels to study. Powell noted that the U.S. began the year around full employment, and inflation was expected to continue falling to the central bank's target, an achievement many doubted the central bank could accomplish.
• In his first public remarks on recent financial volatility, Powell said he felt that bond and stock markets were functioning well, with recent swings showing investors adapting to the new policy landscape. Asked if there is a "Fed put" where the central bank would step in if markets plummet, Powell said no, while explaining. "Markets are struggling with a lot of uncertainty, and that means volatility. But having said that, markets are functioning...They're orderly, and they're functioning just about as you would expect them to function."

(Source: Reuters)