Powell to address economic outlook amid tariff-induced market uncertainty

Federal Reserve Chair Jerome Powell spoke at the Economic Club of Chicago on Wednesday, his first address since President Trump's reciprocal tariffs went into effect on April 9 before being paused for many countries, according to Wall Street Journal coverage of the event. Powell emphasized that the Fed would maintain a wait-and-see approach to interest rates while monitoring economic conditions, as reported by the Journal.

In his remarks about the Fed's balance sheet, Powell clarified that the central bank wasn't concerned about market liquidity despite slowing the pace of its balance-sheet runoff at its March policy meeting. "We think reserves are still abundant," Powell stated, as published in Barron's analysis of the speech. The Fed chair dismissed speculation that policymakers were worried about available liquidity in the market, with Barrons noting that some market watchers had interpreted the March slowdown as a sign of concern.

Powell addressed the impact of Trump's tariff policies, warning they risked pushing both inflation and employment further from the Fed's goals, Reuters reported in their comprehensive coverage of the speech. "I do think we'll be moving away from those goals, probably for the balance of this year. Or at least not making any progress," Powell said about the Fed's targets of 2% inflation and maximum employment, with Reuters highlighting that tariff impacts have proved larger than even the most severe scenarios in Fed planning estimates.

U.S. stocks extended their losses following Powell's remarks, particularly after he denied the existence of a "Fed put" that would prompt central bank intervention if markets plummeted. “Markets are struggling with a lot of uncertainty and that means volatility,” he said.

The Fed chair described recent economic indicators as showing a slowdown, with Reuters noting his observation that consumer spending was growing modestly while a rush of imports to avoid tariffs would likely weigh on GDP estimates. Despite these concerns, Powell maintained that "the U.S. economy is still in a solid position," though Reuters emphasized his acknowledgment that "households and businesses report a sharp decline in sentiment and elevated uncertainty about the outlook, largely reflecting trade policy concerns."

Regarding monetary policy, Powell indicated the Fed is maintaining its benchmark interest rate at 4.25%-4.50%, where it has remained since December following several rate cuts last year. While inflation expectations over short-term periods "have moved up significantly" because of tariffs, Powell reassured that longer-term expectations remain consistent with the Fed's inflation goal, as Reuters detailed in their analysis of the Fed's delicate balancing act between inflation concerns and employment stability. Financial markets are increasingly betting on rate cuts, with Reuters reporting expectations of a full percentage point reduction by year-end.