At the Economic Club of Chicago, Federal Reserve Chair Jerome Powell delivered his "Economic Outlook" speech.
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00:00It's great to be back in Chicago, and thanks for that kind introduction, Austin.
00:09So I'm looking forward to our conversation, my conversation with Professor Rajan, Raghu,
00:16but first I'll briefly discuss the outlook for the economy and monetary policy.
00:21So, at the Fed, we are always focused on the dual mandate goals that Congress has given us,
00:26maximum employment and stable prices.
00:30Despite heightened uncertainty and downside risks, the U.S. economy is still in a solid position.
00:37The labor market is at or near maximum employment.
00:41Inflation has come down a great deal, but is still running a bit above our 2% objective.
00:47Turning briefly to the incoming data, we'll get the initial reading on first quarter GDP in a couple of weeks.
00:53The data we have at hand so far suggests that growth has slowed in the first quarter of this year from last year's solid pace.
01:03Despite strong motor vehicle sales, overall consumer spending appears to have grown modestly.
01:08In addition, strong imports during the first quarter, reflecting attempts by businesses to get ahead of potential tariffs,
01:16are expected to weigh on GDP growth.
01:19Surveys of households and businesses report a sharp decline in sentiment
01:23and elevated uncertainty about the outlook, largely reflecting trade policy concerns.
01:30Outside forecasts for the full year are coming down and, for the most part, point to continued slowing but still positive growth.
01:38We are closely tracking incoming data as households and businesses continue to digest these developments.
01:48In the labor market, during the first three months of this year, non-farm payrolls grew by an average of 150,000 jobs per month.
01:57While job growth has slowed relative to last year,
02:00the combination of low layoffs and lower labor force growth
02:04has kept the unemployment rate in a low and stable range.
02:08Meanwhile, the ratio of job openings to unemployed job seekers
02:12has remained just above one near its pre-pandemic level.
02:18Wage growth has continued to moderate while still outpacing inflation.
02:24Overall, the labor market appears to be in solid condition and broadly in balance
02:29and is not a significant source of inflationary pressure.
02:34As for our price stability mandate,
02:37inflation has significantly eased from its pandemic highs of mid-2022
02:41without the kind of painful rise in unemployment
02:45that has frequently accompanied efforts to bring down high inflation.
02:49Progress on inflation continues at a gradual pace,
02:53and recent readings remain above our 2% objective.
02:57Estimates based on the most recent data from last week
02:59showed that total headline PCE prices rose 2.3% over the 12 months ending in March,
03:07and that excluding the volatile food and energy categories,
03:11core prices rose 2.6%.
03:13Looking ahead, looking forward,
03:16the new administration is in the process of implementing
03:19substantial policy changes in four distinct areas.
03:23Trade, immigration, fiscal policy, and regulation.
03:30These policies are still evolving,
03:32and their effects on the economy remain highly uncertain.
03:36As we learn more, we will continue to update our assessment.
03:40The level of tariff increases announced so far
03:43is significantly larger than anticipated,
03:46and the same is likely to be true of the economic effects,
03:49which will include higher inflation and slower growth.
03:53Both survey and market-based measures
03:56of near-term inflation expectations have moved up significantly,
03:59with survey participants pointing to tariffs.
04:03Survey measures of longer-term inflation expectations,
04:06for the most part, appear to remain well-anchored as well.
04:11Market-based break-evens continue to run close to 2%.
04:14So, as we gain a better understanding of the policy changes,
04:19we'll have a better sense of the implications for the economy,
04:21and hence for monetary policy.
04:24Tariffs are highly likely to generate
04:26at least a temporary rise in inflation.
04:30The inflationary effects could also be more persistent.
04:34Avoiding that outcome will depend on the size of the effects,
04:37on how long it takes for them to pass through fully to prices,
04:41and ultimately on keeping longer-term inflation expectations well anchored.
04:45Our obligation is to keep longer-term inflation expectations well anchored
04:50and to make certain that a one-time increase in the price level
04:54does not become an ongoing inflation problem.
04:59As we act to meet that obligation,
05:01we will balance our maximum employment and price stability mandates,
05:05keeping in mind that without price stability,
05:07we cannot achieve the long periods of strong labor market conditions
05:11that benefit all Americans.
05:15We may find ourselves in the challenging scenario
05:17in which our dual-mandate goals are in tension.
05:21If that were to occur,
05:22we would consider how far the economy is from each goal
05:25and the potentially different time horizons
05:27over which those respective gaps would be anticipated to close.
05:31As that great Chicagoan, Ferris Bueller, once noted,
05:39life moves pretty fast.
05:42For the time being,
05:44we are well-positioned to wait for greater clarity
05:47before considering any adjustments to our policy stance.
05:50We continue to analyze the incoming data,
05:53the evolving outlook, and the balance of risks.
05:55We understand that elevated levels of unemployment or inflation
05:59can be damaging and painful for communities, families, and businesses.
06:04We will continue to do everything we can
06:06to achieve our maximum employment and price stability goals.
06:09Thank you, and I look forward to our discussion.