Amid the fog of tariffs, the Federal Reserve chose to remain inactive, with Powell conveying a 'wait and see' signal.
In the context of continued uncertainty regarding tariff policies, the Federal Reserve has once again chosen to maintain its monetary policy. On May 7, after the Federal Open Market Committee (FOMC) meeting, it announced that it would keep the federal funds rate target range at 4.25% - 4.5%, marking the third consecutive meeting without action. Since the three consecutive rate cuts totaling 100 basis points last September, the Federal Reserve has remained in a wait-and-see mode since January.
Federal Reserve Chairman Powell repeatedly emphasized 'wait and see' during the press conference. He pointed out that the current economy shows some resilience, with the unemployment rate remaining low at 4.2%, and the labor market close to full employment. Although wage growth has slowed, it is still above inflation. At the same time, while inflation has retreated from its high levels, it remains slightly above the long-term target of 2%, and recent inflation expectation indicators have also risen, with tariffs being one of the factors pushing inflation upward.
Powell admitted that the economy is currently facing many uncertainties. The first quarter GDP data showed a decline due to export fluctuations; however, private domestic final consumption, after excluding certain factors, has been steadily increasing. Nevertheless, household and business surveys indicate a sharp decline in consumer confidence, with concerns about the economic outlook primarily stemming from trade policies. The direction of tariff policies and their impact on economic growth, inflation, and employment remains highly uncertain, making it difficult for the Federal Reserve to act rashly.
Regarding the market's concerns about interest rate cuts, Powell clearly stated that Federal Reserve decisions are independent of political pressure, and Trump's calls for rate cuts have no direct impact on their decisions, which will be based solely on economic data and analysis. Faced with the divergence of soft and hard data, Powell believes that the connection between sentiment data and consumer spending is relatively weak, and the Federal Reserve will pay more attention to actual economic data. He emphasized that the current monetary policy stance is appropriate, and the Federal Reserve is in a favorable position to wait and see, with low costs of further observation.
Additionally, Powell mentioned that the Federal Reserve is conducting a five-year review of its monetary policy framework, which is expected to be completed by the end of summer. During the Q&A session, Powell responded to various questions regarding the possibility of recession, changes in the labor market, and the impact of tariffs. He believes that while the risks of economic downturn have increased, they have not yet been fully reflected in the data. The Federal Reserve will continue to monitor changes in economic data and decide whether to adjust its monetary policy stance once the situation becomes clearer. Until the tariff issues are clarified, the Federal Reserve will remain patient, waiting for the right opportunity to take action.