Powell: U.S. Economic Outlook "Highly Uncertain," Fed Internally Leaning Toward Fewer Rate Cuts

Caixin March 19 News (Editor Zhao Hao)
At Wednesday’s press conference, Powell explicitly stated that U.S. inflation remains stubborn, and the outlook is increasingly uncertain—variables ranging from Middle East tensions to tariff disruptions are disrupting the pace of inflation decline.

Earlier in the day, the Federal Reserve announced that the target range for the federal funds rate would remain unchanged at 3.5% to 3.75%, marking the second consecutive pause, reflecting the Fed’s caution about the possibility of inflation getting out of control.

Powell opened by saying that the U.S. economy is expanding, inflation remains somewhat high, consumer spending is resilient, but housing activity is weak. He believes the current policy stance is appropriate, “helping to achieve our goals.”

Powell reiterated that labor demand has cooled significantly, but the unemployment rate has remained relatively stable since last summer. He noted that recent rate cuts should help stabilize the labor market.

During the Q&A, he added, “There are indeed downside risks to the labor market, but several employment indicators show a certain degree of stability.” When assessing, reports from January and February should be considered together.

Powell mentioned that the impact of developments in the Middle East remains uncertain, and the Fed will closely monitor various risks. It is still too early to judge the scope and duration of their impact on the economy.

Regarding inflation, he projected that the U.S. February PCE inflation rate would be 2.8%, with core PCE at 3.0%. He acknowledged that “recent inflation expectations have risen, and energy price increases will push overall inflation higher,” with some oil shocks reflected in core inflation.

In the Q&A, Powell admitted that inflation far above the 2% target is concerning. Several participants mentioned rising short-term inflation expectations, and everyone agreed to keep a very close watch on inflation expectations.

Powell noted that there is uncertainty among individual policymakers about future rate expectations, and the dot plot does not represent a preset path. The Fed will decide at each meeting. He also acknowledged that “some members lean toward reducing the number of future rate cuts.”

He later added that, although most participants do not see rate hikes as the baseline, the discussion did include the possibility of guiding market expectations toward potential rate increases.

Powell stated that a series of shocks have interrupted the Fed’s progress in lowering inflation, “we need to see progress in goods inflation before we can judge whether we have made progress. If inflation shows no progress, we will not cut rates.”

During the Q&A, he further said, “I wouldn’t say I’m certain tariffs will only have a one-time impact; I am completely uncertain about this issue.**” “Whether we can ignore energy inflation depends on whether we can contain goods inflation.”

He mentioned that slow progress on tariffs affects inflation forecasts and may require more time. He also said that prolonged high oil prices will weigh on consumption, “We really don’t know what impact rising energy prices will have.”

He added that oil shocks can be offset by U.S. energy production; if oil companies believe the rise will persist, they will increase output.

Powell emphasized that the current policy stance is appropriate, balancing on the edge between tightening and easing. The policy rate is at the higher end of the neutral zone, or slightly restrictive.

Powell said that if, by the end of his tenure as Fed chair, his successor has not been confirmed, he will continue to serve as “acting chair” until the successor is officially appointed.

When asked whether stagflation might occur, Powell responded that it is not the stagflation of the 1970s. Although the Fed is currently trying to balance between two major objectives, this is not stagflation.