Key Points

  • Federal Reserve Chair Jerome Powell said last Friday that the central bank is pausing adjustments to its benchmark interest rate while assessing the impact of tariff increases and other broad policy changes by the Trump administration.
  • "Uncertainty around these changes and their likely effects remains high," Powell said in remarks, referring to the "significant" adjustments President Trump has implemented on regulation, immigration policy, government spending, and trade policy.
  • "As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves," he said. "We do not need to be in a hurry and are well positioned to wait for greater clarity," Powell added, "Policy is not on a preset course."

Deep Dive

Powell said that although the Fed has made progress in easing price pressures, inflation could follow a "bumpy" path back to the 2% target level.

Powell said recent market and survey data both show that short-term inflation expectations have risen, "with consumers and businesses both citing tariffs as a contributing factor."

Recent surveys show that business and consumer confidence in the economic outlook has declined due to concerns about import tariffs and the prospect of higher prices.

"Many business leaders expressed greater concern about inflation, largely stemming from the expected pass-through of costs from tariff increases," the Dallas Fed said in a report cited in its "Beige Book" economic summary released Wednesday.

FactSet said last Friday that the proportion of S&P 500 companies mentioning tariffs during earnings calls between December 15 and March 6 reached its highest level in a decade.

FactSet said that of the 259 companies in the index that mentioned tariffs, 55 were industrial companies, and 82% of companies in the materials sector mentioned tariffs.

"Materials, Industrials, Consumer Discretionary, and Consumer Staples are the four sectors that had the highest percentage of companies citing 'tariff' during their fourth-quarter earnings calls, and they are also the four sectors with the largest declines in first-quarter EPS estimates so far," John Butters, senior earnings analyst at FactSet, said in a statement.

Powell said the labor market remains stable amid uncertainty over inflation and federal policy.

"Many indicators show the labor market is solid and broadly in balance," he said, citing government data released last Friday showing employers added 151,000 jobs in February, averaging 191,000 per month since September.

Meanwhile, "wage growth is faster than inflation and at a more sustainable pace than in the early stages of the pandemic recovery," Powell said.

The U.S. Bureau of Labor Statistics said average hourly earnings rose 0.3% last month, with an annual increase of 4%.

The BLS said the unemployment rate rose 0.1 percentage point to 4.1%, and federal employment fell by 10,000 in February. These data do not fully reflect the Trump administration's cuts to federal jobs at the end of the month.