In a speech on Friday, Federal Reserve Chairman Jerome Powell assured Wall Street that the central bank is paying attention to how the Trump administration's actions on issues like tariffs and immigration will impact the economy. He stressed patience saying, "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."
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The new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their likely effects remains high. As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves. We do not need to be in a hurry and we are well positioned to wait for greater clarity. Policy is not on a preset course. If the economy remains strong but inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly. Our current policy stance is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our mandate.
