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Federal Reserve Chair Jerome Powell announced today that interest rates will remain unchanged in the face of growing economic uncertainty. In a conference speech at the University of Chicago’s Booth School of Business, Powell emphasized the need for caution in light of recent developments.
Notably, Powell cited the Trump administration’s policy changes as a significant factor in his decision. The central bank chief noted that these policies have created a heightened sense of uncertainty among businesses and consumers alike. This uncertainty has led to a sharp drop in consumer confidence, which could have devastating consequences for economic growth.
Despite recent reports of job additions and moderate unemployment rates, Powell expressed concern over the potential impact of tariffs on inflation. He highlighted the need to prioritize long-term inflation expectations, stressing that these expectations are what truly matter when it comes to making decisions about interest rates.
In his address, Powell also referenced the central bank’s own “beige book,” which revealed a significant spike in uncertainty among businesses. This uptick is particularly concerning given recent layoffs and government worker firings, all of which have contributed to a sense of unease in the market.
While some economists have downgraded their growth estimates for the first quarter of 2025, Powell remains optimistic about the potential for “good news” rate cuts later this year. These reductions would be triggered by a shift back towards inflation expectations being within target.
It’s worth noting that core prices rose by 2.6% in January, marking the smallest increase since June. This data has led some to suggest that inflation may not be as concerning as previously thought. However, Powell emphasized that this small increase is still cause for caution, particularly given the backdrop of elevated uncertainty.
In conclusion, Chair Powell’s remarks today reinforce his commitment to prioritizing long-term inflation expectations in his decision-making process. The announcement comes amidst a backdrop of heightened uncertainty, which has led to a sharp drop in consumer confidence and a re-evaluation of growth estimates by many economists.
Source: https://www.cbsnews.com/news/interest-rates-federal-reserve-jerome-powell-trump/
