In his prepared remarks for Congressional testimony, Fed Chair Jerome Powell acknowledged that this year’s tariff increases are likely to both “push up prices and weigh on economic activity”. He noted that while the inflationary effects could be transitory, there’s also a risk that they become more persistent depending on the magnitude of pass-through and how firmly inflation expectations remain anchored.
Powell emphasized that Fed’s primary responsibility is to “keep longer-term inflation expectations well anchored and to prevent a one-time increase in the price level from becoming an ongoing inflation problem”.
He emphasized that “without price stability, we cannot achieve long periods of strong labor market conditions”.
Given the uncertainties ahead, Powell signaled that the FOMC remains in a wait-and-see mode, saying the Fed is “well positioned to wait” before making any policy changes.
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