Powell says Fed not rushing to cut rates at time of heightened uncertainty

Chairman says return to 2% inflation will be bumpy

Fed Chairman Jerome Powell said the central bank is not in a hurry to cut interest rates despite an uncertain US economic outlook. Bloomberg

US Federal Reserve Chairman Jerome Powell on Friday indicated the central bank is likely to hold interest rates because of uncertainty surrounding President Donald Trump's policies.

“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,” Mr Powell said in remarks at the University of Chicago Booth School of Business 2025 US Monetary Policy Forum in New York.

Mr Powell noted four areas – trade, immigration, fiscal policy and regulation – that Mr Trump's administration is changing.

“It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy,” he said.

Most economists argue that Mr Trump's plans to place 25 per cent tariffs on Mexico and Canada – America's two biggest trading partners – will lead to slower growth and higher inflation. And Mr Trump's on-again, off-again approach towards their implementation has brought uncertainty over the economic outlook, pummelling US markets in a week of volatile trading.

Despite this uncertainty, Mr Powell said the economy is “in a good place”. His remarks came shortly after new data showed the US added a soft – but still solid – 151,000 jobs in February, while the unemployment rate slightly rose to 4.1 per cent.

Meanwhile, the Fed's separate data showed its preferred inflation measure slowed last month to 2.5 per cent year-on-year, still half a per cent above its long-term target.

“The path to sustainably returning inflation to our target has been bumpy, and we expect that to continue,” he said.

The Fed chairman's speech was one of the final public remarks by the central bank before it begins its so-called blackout period – the window in which officials are prohibited from giving public remarks on monetary policy before a meeting.

The central bank holds its next meeting on March 18-19, where it is expected to keep the Fed funds target range steady between 4.25 and 4.50 per cent.

Warning signs are beginning to appear on the economic outlook, with US consumers unexpectedly pulling back their spending in January. And while some recent surveys showed consumer confidence and sentiment is declining, Mr Powell dismissed these as poor predictors of consumption growth.

However, the Fed's own beige book of economic conditions released on March 5 showed businesses across the country were concerned over the impact of tariffs.

Mr Powell also said the Fed is monitoring inflation expectations, noting some near-term expectations have moved up.

“However, most measures of longer term expectations remain stable and consistent with our 2 per cent goal,” he said.

Fed officials are assessing whether the inflation effects of Mr Trump's tariffs would be a one-time bump or more sustained.

Speaking on Thursday, Fed governor Christopher Waller maintained his view that the effect of the tariffs will not be significant. Mr Waller added that he believes the Fed could cut rates two or three times this year if the economy performs as he expects.

New York Fed President John C Williams said tariffs will have some effect on prices this year although it was still too early to assess how they would be affected.