The US Federal Reserve will not rush to cut interest rates as it awaits further clarity on the economic impact of policy changes under the new Trump administration, Fed Chair Jerome Powell said on Friday, according to Reuters. “The new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation.”
“Uncertainty around the changes and their likely effects remains high,” he added.
He stressed that the central bank would take its time assessing the situation. “We are focused on separating the signal from the noise as the outlook evolves. We do not need to be in a hurry and are well-positioned to wait for greater clarity,” he said, according to Reuters.
Uncertainty Over trade, immigration, and fiscal policy
His remarks come at a time of market volatility, with stocks and bond yields declining following President Donald Trump’s announcements of steep import tariffs on Mexico and Canada, followed by subsequent delays. Trump has also doubled tariffs on imports from China, adding further uncertainty to the economic outlook.
Despite the turbulence, Powell said the economy “continues to be in a good place,” Reuters reported. However, he acknowledged signs of a possible slowdown in consumer spending and “heightened uncertainty about the economic outlook” among businesses.
“It remains to be seen how these developments might affect future spending and investment,” he noted.
Economic growth steady despite concerns
Key economic indicators remain solid, Powell added, pointing to continued job gains and steady, albeit uneven, progress on inflation. The US government reported job growth of 151,000 in February, with Powell highlighting that the economy has been adding an average of 191,000 jobs per month since September, according to Reuters.
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While some short-term inflation expectations have risen, “most measures of longer-term expectations remain stable and consistent with our 2% inflation goal,” Powell said.
He reassured that the Fed’s current policy stance is well-positioned to respond to shifting economic conditions, whether inflation slows faster than expected or the economy weakens.
The central bank is expected to keep its benchmark interest rate steady at its March 18-19 policy meeting, within the current range of 4.25% to 4.50%. Policymakers will also issue new economic projections, offering insights into how the first two months of the Trump administration have influenced expectations for inflation, employment, growth, and the path of interest rates.
Investors are now taking the possibility of an economic slowdown more seriously and anticipate the Fed will approve three quarter-percentage-point rate cuts by the end of the year, Reuters reported.
(With inputs from Reuters)
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