Jerome Powell, the chairman of the U.S. Federal Reserve, affirmed the strength of the American economy but warned of the risk of inflation returning, driven by the new trade policies of the U.S. administration. In his speech at the Chicago Economic Club, he indicated that the economy remains in good shape despite a slowdown in growth in the first quarter of 2025, which he attributes to a decline in consumer spending and an increase in imports due to tariff concerns. Here are the key statements;
The strength of the economy amid slow growth:
Powell noted that the U.S. economy remains strong, despite the slowdown in growth in the first quarter of 2025. He attributed this slowdown to a decline in consumer spending and rising imports due to fears of increased tariffs. He confirmed that the labor market has remained robust, adding 150,000 jobs monthly and a decrease in the unemployment rate. The risk of inflation returning:
Powell expressed concern about the effects of new trade policies, primarily tariffs, which could lead to "higher inflation and slower growth." He noted that the annual Personal Consumption Expenditures Price Index reached 2.3% in March, and 2.6% excluding food and energy, which is still above the goal set at 2%. He warned that balancing the goals of full employment and price stability may become more challenging if they conflict in the upcoming phase. He confirmed that short-term indicators of inflation expectations have started to rise. Monetary policy:
Powell asserted that the Federal Reserve currently sees no need to change interest rates, indicating that the central bank is "in a good position to wait until the picture becomes clearer." He noted that the Fed is closely monitoring developments and is ready to act if inflation spirals out of control again. He explained that the Fed has gradually lowered interest rates after a series of increases to contain inflation, with rates reaching 4.5% in the first quarter of 2025.
