"Wait Until Clear Outcomes Emerge"
On Expectations of 'Powell Put': "No Intention to Intervene"
Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), warned that the tariffs imposed by the Trump administration are higher than expected and that the tariff policy could lead to a dilemma between controlling inflation and promoting economic growth.
According to CNBC and others, Powell stated in a speech at the Economic Club held in Chicago, Illinois, "The level of tariff increases announced so far is much higher than expected," adding, "The impact on the economy is likely to be similar, including rising inflation and slowing growth."
He continued, "We may face a difficult situation where our two main goals conflict," and said, "If that happens, we will consider how far the economy is from each goal and how different the expected timing is for closing the gap between each goal and reality."
The Fed must catch two rabbits: inflation and employment. When the economy slows down, inflation falls and unemployment rises. At this time, lowering interest rates can achieve both goals simultaneously. However, Fed officials and economists believe that tariffs can raise both inflation and unemployment at the same time.
Powell said about tariffs, "They are likely to push us further away from our goals," and "probably for the remainder of this year."
However, he reaffirmed the existing stance of monitoring the situation without considering rate cuts or other measures. He also did not comment on the direction of interest rates. He said, "For the time being, it would be better to wait for clearer outcomes before making any adjustments to the policy stance."
When inflation is high, the Fed freezes or raises interest rates to suppress demand. However, if growth slows, it lowers interest rates. According to the Chicago Mercantile Exchange (CME) FedWatch on that day, Wall Street forecasts a 29.7% probability that the benchmark interest rate will remain unchanged until the end of June.
Regarding the impact of tariffs on inflation, he sees it as temporary but also suggested that the effect could last longer.
In the market, there is an expectation of the so-called "Fed put" or "Powell put," where the Fed intervenes to stabilize the market if the stock market plunges. However, Powell made remarks that dampened such expectations in response to this question. Powell said, "The market is functioning as originally intended and maintaining order," indicating no intention to intervene.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
