Federal Reserve Chairman Jerome Powell echoed the market’s concern over “uncertainty” tied to tariff and economic policies but noted that solid labor markets and easing inflation pressures likely mean the central bank remains in “no hurry” to change its key policy rate.
Speaking to a forum on monetary policy in New York, hosted by the University of Chicago Booth School of Business, Powell said that while the economic outlook is now clouded by uncertainty, much of the impact has been seen in sentiment surveys, which he stressed have “not always been a good predictor of consumption growth.”
“Looking ahead, the new Administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation,” Powell said. “It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy.”
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“While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their likely effects remains high,” he added. “As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves.”
“We do not need to be in a hurry and are well positioned to wait for greater clarity,” Powell said.
Powell
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Powell’s remarks come at a crucial juncture for the U.S. economy, which is now transitioning from focusing on inflation pressures tied to fiscal support to an emphasis on protectionist policies that President Donald Trump claims are designed to reset trade relationships between the United States and its allies.
The labor market, meanwhile, is starting to show signs of near-term weakness. Last month, 151,000 new jobs were created, a smaller-than-expected increase, and data from Challenger Gray on corporate layoffs showed the largest two-month increase since 2009.
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“We have become used to the payroll report signaling the end of the markets’ workweek at the beginning of each month,” said Rick Rieder, BlackRock’s chief investment officer of Global Fixed Income.
“But today’s report was just another asteroid coming at the markets, and presumably one of the asteroids that the Fed has to assess when determining when and if they can cut interest rates again,” he added.
Economic ‘detox’ on deck
Treasury Secretary Scott Bessent told CNBC Friday that the economy would experience a “natural adjustment” as it “detoxes” from government spending to private sector growth, which is powered by the President’s new trade and tariff agenda.
“The market and the economy have just become hooked, and we’ve become addicted to this government spending, so it’s a much-needed course adjustment,” Bessent said. “We’ll see whether there’s pain [but] I’m confident if we have the right policies, it’ll be a very smooth transition.”
Wall Street economists aren’t as convinced.
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Earlier Friday, Goldman Sachs followed rival JPMorgan in lowering its first quarter GDP growth estimate this week, pegging a likely advance of around 1.7% to reflect what it called “new tariff assumptions” for the world’s biggest economy.
“While our previous tariff assumptions implied a peak hit to year-on-year GDP growth of -0.3 percentage points, our new assumptions imply a peak hit of -0.8 percentage point. In the risk scenario, this would grow to -1.3 percentage points,” Goldman Sachs said.
Stocks in free fall as worries mount
“Taking on board this additional 0.5 percentage point drag on growth from our new larger tariff assumptions, we have reduced our 2025 Q4/Q4 GDP growth forecast to 1.7%, from 2.2% previously,” the bank added. “This implies that GDP growth will be slightly below potential rather than slightly above.“
Stocks are also in a funk, with the S&P 500 erasing all of its post-Election Day gains this week and now trading at the lowest levels since early October.
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The Atlanta Fed’s GDPNow tracker, meanwhile, pegs the current quarter contraction at around 2.4%. However, it will be populated with new data starting March 17.
The early signs of improvement, though, are fleeting: the Fed’s ‘Beige Book’ of economic activity around the central bank’s 12 reporting regions indicated “moderate” growth prospects but saw a doubling in the mention of “tariffs” and the highest rate of “uncertainty” mentions on record.
Fed rate decision up next
ISM and S&P Global surveys are similarly tainted with tariff concerns, and even those showing modest hints towards growth are clouded by rising prices and plunging new orders.
The Fed survey summed it up well: “Contacts in most Districts expected potential tariffs on inputs would lead them to raise prices, with isolated reports of firms raising prices preemptively.”
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The Fed’s next policy meeting is slated to begin on March 18, and bets on a near-term interest-rate cut from the Fed are starting to accelerate.
The CME Group’s FedWatch pegging the odds of a March cut at just 3%, but sees a 40% of a reduction in May, up from just 25% last month.
Traders are also betting on at least two further cuts over the course of the year after pricing in only a single rate cut for much of the first two months of trading.
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