Slap in the face to Trump! Powell reiterates that there is no rush to cut interest rates, stating that the economy is still good and uncertainty is extremely high, and refuses to take action ahead of tariffs.

Powell stated that there will be no progress on the Federal Reserve's inflation and employment goals for at least the next year.

Written by: Li Dan

Source: Wall Street Journal

The Federal Reserve's recent meeting decided to pause interest rate cuts again, and Fed Chairman Powell reiterated afterward that the Fed is not in a hurry to act and does not believe it should preemptively cut rates in response to tariff shocks, once again contradicting U.S. President Trump, who has repeatedly urged for immediate rate cuts.

On May 7th, Wednesday, Eastern Time, the Federal Reserve's monetary policy statement added a new sentence: "The risks of rising unemployment and rising inflation have increased." At the subsequent press conference, Powell was asked which issue needs to be addressed first during his term, unemployment or inflation.

Powell stated that the risks of rising unemployment and rising inflation are intensifying. It is still unclear which risk is the more concerning issue. "It's too early to draw conclusions now." Powell believes that both the risks of unemployment and inflation need to be considered simultaneously, and one may have to make trade-offs between them.

When asked if the Federal Reserve needs a long time to figure out the developments, Powell emphasized, "I don't think we know." He also reiterated previous statements, saying that the Federal Reserve will not rush to cut interest rates. He said:

"We believe that there is no need to rush to adjust interest rates."

We believe we can be patient, and we will pay attention to the data.

At the same time, Powell emphasized that Trump's high tariffs could lead to increased unemployment and inflation. He said:

"If the announced significant increase in tariffs continues, it could lead to rising inflation, slowing economic growth, and an increase in unemployment rates."

The current monetary policy has moderate restrictions, and the decision to wait and see is very clear.

Powell comments on the U.S. economy, stating that it remains robust. The labor market is generally balanced and at or near full employment. Inflation growth has significantly slowed down. Wage growth continues to trend moderately.

Powell stated that the current Federal Reserve monetary policy has a moderate or moderate restrictive stance. He said, "The underlying inflation outlook is good."

Comments suggest that this means Powell acknowledges that the current monetary policy is still suppressing inflationary pressures and that interest rates are not at a neutral level.

Powell reiterated that the Federal Reserve's policy is in good shape, and there is no pressure on the Fed to take action on interest rate cuts, stating, "We can act quickly at the appropriate time."

Powell stated that the Federal Reserve does not know where trade policy will lead. But for now, "waiting and observing is a fairly clear decision for us." He noted that businesses, market participants, and forecasters are all watching the situation unfold, insisting that "everyone is waiting."

Comments suggest that, based on the information currently disclosed by the Federal Reserve, the threshold for a rate cut in June is quite high.

If high tariffs are maintained, at least for the next year, the Fed's goals will not make progress.

A reporter asked about the path to a soft landing, and Powell reiterated that the Federal Reserve is still unclear about the direction of trade policies such as tariffs.

Powell believes that if Trump maintains high tariffs, the Federal Reserve will not be able to make progress on its policy goals of achieving both inflation and employment. He stated that "for at least the next year," the Fed's targets may not make further progress.

"Given the scope and scale of tariffs, we are likely to find that the risks of inflation and unemployment will certainly increase. If this is indeed the case, and if tariffs are ultimately implemented at a level that we cannot yet determine, we will not be able to make further progress in achieving our goals. We may see this process delayed."

He pointed out that the Federal Reserve will not issue forecasts regarding the likelihood of an economic recession.

Powell stated that businesses are delaying investment decisions and households are postponing spending decisions. In such circumstances, the Federal Reserve cannot take "preemptive" action. He mentioned that the Federal Reserve's interest rate cuts last autumn were not preemptive, and if there is any difference to mention, it is that they came a bit late.

"This is not a preemptive situation because we actually do not know how to respond to this data until we see more data."

Powell stated that in some cases it is appropriate to cut interest rates this year, while in other cases it is not appropriate. "I can't confidently say that I know what the right path is unless we understand better how this issue will be resolved and its economic impact on employment and inflation."

The statement from this Federal Reserve meeting indicated that the uncertainty regarding the economic outlook has "further" increased. Powell also mentioned uncertainty at the press conference, saying:

My intuition tells me that the uncertainty of the economic trend is extremely high.

Powell stated: "Typically, the situation will gradually become clearer, and the correct direction will become evident." Meanwhile, he believes that "our (U.S.) economy is performing well."

The impact of tariffs has not yet arrived, and the effect of policies on inflation may be temporary or more lasting.

Powell still believes that the impact of the Trump administration's policies on inflation may be temporary.

"The impact on inflation may be temporary, reflecting a one-time change in price levels." But "the effects of inflation may also be more persistent."

When asked whether the impact of tariffs has yet to arrive, he replied, "Not yet." "People are worried about inflation, worried about the impact of tariffs, but that impact has not yet arrived."

Powell said that the Federal Reserve is committed to anchoring inflation expectations. The Fed may find a conflict between achieving its two main goals of price stability and full employment. Currently, the Federal Reserve is prepared and waiting for certainty in policy.

Powell said, "Currently, we see inflation fluctuating at a relatively low level."

Powell stated that there is no need to take action at this time, and there is no data to support action, reiterating more than once: "We just need to wait and see how things develop."

Comments indicate that the Fed is in a passive rather than active mode. From the market's perspective, there is still some distance before triggering the Fed Put, which refers to the expectation that the Fed will intervene to support the market in the event of a significant drop.

Negotiations may substantially change the trade situation, or they may not.

Regarding the upcoming high-level economic and trade talks between China and the United States, Powell stated that he cannot comment directly.

Powell mentioned the so-called reciprocal tariffs announced by the Trump administration on April 2, reiterating that the level of the new tariffs far exceeds the Federal Reserve's expectations.

However, he went on to say that the United States "seems to be entering a new (trade) phase," as the Trump administration is starting preliminary trade negotiations with some key U.S. trading partners. This could "substantially change the situation, or it may not." "We cautiously avoid making conclusive judgments when facts change."

Powell stated regarding trade policy: "Ultimately, this is up to the government to decide. It is their responsibility, not ours."

US GDP May Be Revised Upward, Import Surge Makes Data Difficult to Interpret

In line with statements from officials in the Trump administration, Powell expects that the U.S. GDP data may be revised upward.

Powell stated that numerous survey results indicate that tariffs have raised inflation expectations. He believes that trade issues complicate the measurement of GDP. The surge in imports in the first quarter will make it difficult to accurately interpret GDP data.

Powell said that the GDP data conveys one signal, while the "Private Domestic Final Purchases" (PDFP) data, which excludes inventories and government spending, may convey another signal. This might be harder for the general public to understand. Overall, this situation does not really change the Federal Reserve's policy path.

Powell believes that there may be a disconnect between consumer sentiment surveys and actual consumer spending, which is "another reason (for the Fed) to be cautious."

When asked about the tools the Federal Reserve has to deal with supply chain disruptions, Powell replied, "We don't have those tools at all." He added that it depends on the government and the private sector.

Will not be influenced by Trump's calls, no request to meet with the president

Powell said that Trump's calls for interest rate cuts "will not affect our work at all." He stated, "We will always do the same thing, which is to use our tools to promote maximum employment and price stability for the benefit of the American people. We will only consider economic data, outlook, risk balance, and nothing more. That is all we have to consider."

A reporter asked Powell about Trump's previous statement that he would not remove him from his position as Chairman of the Federal Reserve, and how he responded. Powell replied that he had nothing to say.

A reporter also asked whether Powell could continue to serve as a Fed governor after his term as Fed Chair ends in May 2026. Powell stated that he has no comment on this.

When asked why he has not met with Trump during his new presidential term, Powell replied: "I have never asked to meet with any president, and I never will."

The growth path of government debt is unsustainable

A reporter asked whether the Trump administration's spending cuts could impact economic growth. Powell stated that the Federal Reserve views Congress's budget actions as "given." Congress does not require the Fed to provide recommendations on fiscal policy, just as the Fed does not require Congress to provide recommendations on monetary policy.

However, Powell reiterated the warning that the fiscal path is unsustainable. He said:

"There is one thing we know for certain: the current trajectory of government debt growth is unsustainable. The debt itself is not at an unsustainable level, but rather the path of its growth is unsustainable."