Key Takeaways
- Federal Reserve Chair Jerome Powell strongly affirmed the importance of Fed independence, stating it has significantly benefited the public and should be upheld as long as it continues to serve the public well.
- Powell noted a moderation in economic growth largely reflecting a slowdown in consumer spending, which, after years of strong growth, may be slowing but remains healthy with solid credit performance.
- While goods inflation is pushing the Fed slightly off its target, Powell characterized the recent price rise as likely one-time, emphasizing that the current policy stance is modestly restrictive and well-positioned to address inflation risks.
- The labor market is assessed as being near maximum employment, with the unemployment rate remaining low, though Powell acknowledged downside risks and a slowing in job creation and worker supply.
- Powell indicated that the tax bill may offer only limited stimulus and clarified that the Fed does not factor government costs into rate decisions to preserve policy credibility.
Federal Reserve Chair Jerome Powell underscored the critical role of Fed independence, asserting that it has been highly beneficial to the public and should be respected and maintained as long as it continues to serve public interests. He also highlighted the essential need for reliable government data for the Fed's operations.
On the economic front, Powell described the U.S. economy as remaining in a solid position despite ongoing uncertainty. He observed that inflation is somewhat above target, with expectations for PCE to rise 2.5% and core PCE 2.7% over the next 12 months through June, consistent with the Fed's 2% longer-term inflation goal. The Chair noted that economic growth has moderated, largely due to a slowdown in consumer spending, which, despite years of robust expansion, is now showing signs of deceleration but maintains solid credit performance. He characterized the recent rise in prices as likely a one-time event, with timing adjustments being crucial.
Addressing the impact of tariffs, Powell stated it is still early to fully assess their effects, but some are beginning to appear in consumer prices. He assured that the Fed would ensure this does not escalate into serious inflation. Powell also pointed to high uncertainty in ongoing trade talks, noting that many issues remain unsettled with potential developments ahead.
Regarding the labor market, Powell indicated that a wide set of indicators suggest it is near maximum employment, with the unemployment rate remaining low within a narrow range. However, he acknowledged clear downside risks to the job market, observing that job creation and worker supply are slowing at a similar pace.
Discussing fiscal policy, Powell suggested that the tax bill may provide only limited stimulus, not a major one. He reiterated that the Fed does not factor government costs into its rate decisions, a stance taken to preserve policy credibility. Powell also mentioned a "good, respectful visit" with the President and expressed satisfaction with presidential support for a long-standing project.
Powell characterized the current monetary policy as modestly restrictive, stating that the economy is not showing signs of being overly restrictive and that this stance leaves the Fed well-positioned. He emphasized the need for more data in the coming months and stated that no decision has been made regarding the September meeting. He also noted that the Treasury handles dollar policy, and the dollar has not been a major topic in Fed discussions.
In other news, the U.S. Treasury Department announced new Iran-related sanctions targeting multiple individuals and entities. Additionally, new U.S. tariffs on Brazil imports are set to take effect in seven days, though the White House confirmed numerous exemptions, including select wood pulp, oil products, fertilizers, energy goods, pig iron, precious metals, orange juice, and certain civil aircraft and parts. An oil lobby group, IBP, reported that oil firms are suspending shipments from Brazil to the U.S. due to the uncertainty surrounding these tariffs.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.