WASHINGTON: The Trump administration’s initial policies, including extensive import tariffs, appear to have tilted the United States economy toward slower growth and at least temporarily higher inflation, Federal Reserve Chair Jerome Powell said on Wednesday (Mar 19), with central bank policymakers left guessing over what lies ahead during a period of “unusually elevated” uncertainty.
With overall sentiment sliding due to policy “turmoil”, prices are projected to rise faster than expected at least in part and perhaps largely because of President Donald Trump’s plans to levy duties on imports from US trading partners, Powell said after the Fed announced it had held its benchmark overnight rate steady in the 4.25 per cent to 4.50 per cent range.
While Fed policymakers still expect the central bank to deliver two quarter-percentage-point rate cuts by the end of this year, matching their projection in December, that is largely due to weakened economic growth offsetting higher inflation, and what Powell called the “inertia” of not knowing what else to do given the muddled outlook.
There is “just really high uncertainty. What would you write down?” when making projections, Powell said in a news conference after the end of the Fed’s latest two-day policy meeting.
“I mean it’s just … really hard to know how this is going to work out.”
“We understand that sentiment is quite negative at this time, and that probably has to do with turmoil at the beginning of an administration that’s making big changes,” Powell said.
Overall economic data remains solid, the Fed chief said, pointing to the current unemployment rate of 4.1 per cent and a sense that the job market remains roughly in balance.
Trump posted late on Wednesday on his Truth Social platform: “The Fed would be MUCH better off CUTTING RATES as US Tariffs start to transition (ease!) their way into the economy. Do the right thing.”
Powell’s remarks and the Fed’s latest set of policymaker projections were heavily influenced by what has transpired since Trump took office on Jan 20 with a vow to impose the import tariffs.
Data released along with the latest policy and economic projections showed Fed officials in near unanimity that the outlook was less certain than usual, and that risks considered balanced as of the Fed’s Jan 28 to Jan 29 meeting were now tilted towards slower growth, higher joblessness and higher inflation.
If the Fed’s median outlook for the next three years comes to pass, it would be the weakest three-year run of economic growth since at least former President Barack Obama’s first term in the White House and the slow recovery from the 2007 to 2009 recession.
