In his recent statements, Federal Reserve Chairman Jerome Powell highlighted the uncertainties in the current economic outlook, signaling that a cautious stance in monetary policy will continue. Powell stated, “We don’t yet know what the effects of the current situation will be on the economy,” adding that global developments and geopolitical risks, in particular, are creating uncertainty.
In his assessment of the inflation outlook, Powell stated that expectations remained largely stable. “Inflation expectations appear strong and anchored,” said the Fed chairman, adding that the institution remains committed to achieving its 2% inflation target. However, he noted that tariff-induced inflation would have a temporary effect and could increase annual inflation by approximately 0.5 to 1 percentage point.
Powell also touched upon the limitations of monetary policy, stating that the Fed’s tools have not had a significant impact on supply-side shocks. Noting that developments in the Middle East are affecting oil prices, Powell said that the current policy stance is “at an appropriate point” and that developments should be monitored.
On the other hand, Powell also emphasized the independence of the Fed, reminding that while they should be completely independent in monetary policy, they have certain responsibilities within the regulatory framework, particularly under the Dodd-Frank Act. Stating that the institution’s general approach is to remain free from political influence, Powell reiterated that the Fed should maintain an “apolitical” stance.
Responding to criticisms of the Fed’s balance sheet policies, Powell said there was no evidence that past bond purchases had an inflationary effect. He stated that studies showed that long-term asset purchases supported economic activity by lowering interest rates.
Following Powell’s remarks, a notable movement occurred in the US bond market. Specifically, the yield on 10-year Treasury bonds fell by 10.2 basis points to 4.338%.
*This is not investment advice.