The Blubber

Federal Reserve Chair Jerome Powell said Wednesday that the central bank will "wait for greater clarity" before making any changes to interest rates, noting that President Trump’s tariffs are expected to result in “higher inflation and slower growth.”

Speaking in Chicago, Powell acknowledged that these two outcomes could pose a significant challenge for the Fed, which is tasked with maintaining stable prices and maximum employment.

“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” he said.

In a follow-up Q&A session, Powell said there is a “strong likelihood” that the economy may fall short of both goals for the remainder of the year, or at least make little progress toward them. This could lead to a “very difficult judgment” for the central bank, he said.

In that case, the Fed would assess how far the economy is from each objective, as well as the timeframes over which each gap might be expected to close.

Powell also commented on recent turbulence in the bond market following Trump’s April 2 “Liberation Day” tariff announcement, which drove yields higher. He said markets are “orderly and they are functioning kind of as you would expect them to in a period of high uncertainty.”

He described the volatility as part of markets reacting to a “historically unique development” and said he expects further fluctuations ahead.

Powell reiterated the Fed’s independence, calling it “a matter of law,” and emphasized that the central bank would not respond to political pressure.

He also addressed a Supreme Court case that could test the president’s authority to remove members of independent federal agencies—an issue some have speculated could impact the Fed’s leadership. However, Powell said, “I don’t think that’s a case that will apply to the Fed,” though he added that the central bank is “monitoring it carefully.”