Slap Trump in the face! Powell reiterated that there is no emergency rate cut, saying that the economy is still good and the uncertainty is extremely high, and he refuses to take the lead in tariffs

Source: Wall Street Insights

The Federal Reserve decided at its recent meeting to suspend interest rate cuts again. Federal Reserve Chairman Jerome Powell reiterated after the meeting that the Fed is in no hurry to act and does not believe that preemptive interest rate cuts should be carried out in response to tariff shocks, once again refuting U.S. President Donald Trump, who has repeatedly urged immediate interest rate cuts.

On Wednesday, May 7, Eastern Time, the Federal Reserve added a sentence to its monetary policy statement: "The risks of rising unemployment and inflation have increased." At the press conference after the meeting, Powell was asked which aspect of the problem needs to be addressed first during his tenure, unemployment or inflation.

Powell said that the risks of rising unemployment and inflation have intensified. It is still unclear which risk is a more worrying issue. "It's too early to draw conclusions." Powell believes that the risks of both unemployment and inflation need to be paid attention to, and a trade-off may have to be made between them.

When asked whether the Federal Reserve needs a long time to figure out the development of the situation, Powell emphasized: "I don't think we know." He also reiterated his previous remarks, saying that the Federal Reserve will not be in a hurry to cut interest rates. He said:

"We don't think there is a need to rush to adjust interest rates."

"We think we can be patient and we will pay attention to the data."

At the same time, Powell emphasized that Trump's high tariffs may push up unemployment and inflation. He said:

"If the announced measures of significantly raising tariffs continue, it may lead to rising inflation, a slowdown in economic growth, and an increase in the unemployment rate."

The current monetary policy is moderately restrictive, and waiting and seeing is a clear decision.

Powell commented on the U.S. economy, saying that the economy remains robust. The labor market is generally in equilibrium and is at or close to full employment. Inflation growth has slowed significantly. Wage growth continues to moderate.

Powell said that the current monetary policy of the Federal Reserve is mildly or moderately restrictive. He said: "The potential inflation outlook is good."

Comments said that this is equivalent to Powell admitting that the current monetary policy is still suppressing inflationary pressures and that interest rates are not at a neutral level.

Powell reiterated that the Fed's policy is in a good state, and the Fed is not under pressure to take interest rate cut actions, saying, "We can act quickly at the appropriate time."

Powell said that the Federal Reserve does not know where trade policy is heading. But for now, "waiting and observing is a rather clear decision for us." He said that businesses, market participants, and forecasters are all watching the development of the situation, insisting that "everyone is waiting."

Comments believe that judging from the information revealed by the Fed, the threshold for an interest rate cut in June is quite high.

If high tariffs are maintained, the Fed's goals will not make progress for at least the next year.

When asked about the path to a soft landing, Powell reiterated that the Federal Reserve does not know where trade policies such as tariffs are heading.

Powell believes that if Trump maintains high tariffs, the Federal Reserve will not be able to make progress in achieving its policy goals of inflation and employment. He said that the Fed's goals may not make further progress "at least for the next year."

"Considering the scope and scale of the tariffs, we are likely to find that the risks of rising inflation and the unemployment rate will definitely increase. If that is the case, if the tariffs are ultimately implemented at levels that we cannot currently determine, we will not be able to make further progress in achieving our goals. We may see this process postponed."

He pointed out that the Federal Reserve will not release forecasts about the possibility of a recession.

Powell said that businesses are delaying investment decisions, and households are delaying consumption spending decisions. In such a situation, the Federal Reserve cannot take "preemptive" actions. He said that the Fed's interest rate cut last autumn was not preemptive, and if anything, it came a bit late.

"This is not a situation where preemptive action can be taken because we actually don't know how to respond to these data until we see more data."

Powell said that in some cases, an interest rate cut this year is appropriate, and in some cases, it is not. "I cannot confidently say that I know what the appropriate path is unless we further understand how this issue will be resolved and its economic impact on employment and inflation."

The Federal Reserve's meeting statement this time said that the uncertainty of the economic outlook has "further" increased. Powell also mentioned uncertainty at the press conference, saying:

My intuition tells me that the uncertainty of the economic trend is extremely high.

Powell said: "Under normal circumstances, the situation will gradually become clear, and the right direction will also become clear." At the same time, he believes that "our (U.S.) economy is performing well."

The impact of tariff shocks has not arrived yet. The impact of policy on inflation may be short-lived or more persistent.

Powell still believes that the impact of the Trump administration's policies on inflation may be temporary.

"The impact on inflation may be short-lived, reflecting a one-time change in the price level." But "the impact on inflation may also be more persistent."

When asked whether the impact of tariffs has not arrived yet, he replied, "Not yet." "People are worried about inflation and the impact of tariffs, but this impact has not arrived yet."

Powell said that the Federal Reserve is committed to maintaining anchored inflation expectations. The Fed may find that there is a conflict between its two mandates of price stability and full employment. Currently, the Federal Reserve is ready and waiting for policy certainty.

Powell said: "Currently, we see inflation fluctuating horizontally at a fairly low level."

Powell said that there is no need to take action now, and there is no data to support action. He has repeatedly said: "We just need to wait and see how things will develop."

Comments said that this means that the Federal Reserve is in a passive rather than an active mode. From the perspective of the market, there is still a distance from triggering the so-called Fed Put, that is, the Fed's put option that is expected to rescue the market once there is a significant decline.

The negotiations may substantially change the trade situation, or they may not.

Regarding the upcoming high-level economic and trade talks between China and the U.S., Powell said that he cannot directly comment.

Powell mentioned the so-called reciprocal tariffs announced by the Trump administration on April 2 and reiterated that the level of the new tariffs far exceeds the Fed's expectations.

However, he then said that the United States "seems to be entering a new (trade) stage" because the Trump administration is initiating preliminary trade negotiations with some important U.S. trade partners. This may "substantially change the situation, or it may not." "We are cautious to avoid making conclusive judgments when the facts change."

When talking about trade policy, Powell said: "Ultimately, it is up to the government to decide. This is their responsibility, not ours."

The U.S. GDP may be revised upward, and import surges make the data difficult to accurately interpret.

Consistent with the statements of Trump administration officials, Powell expects that the U.S. GDP data may be revised upward.

Powell said that many survey results show that tariffs have pushed up inflation expectations. He believes that trade issues have made measuring GDP complicated. The surge in imports in the first quarter will make it difficult to accurately interpret the GDP data.

Powell said that the GDP data sends one signal, and the data of "private domestic final purchases" (PDFP) that do not include inventories and government spending may send another signal. This may be more difficult for the general public to understand. Overall, this situation will not really change the Fed's policy path.

Powell believes that there may be a disconnect between the surveys of consumer sentiment and actual consumer spending, which is "another reason for the (Federal Reserve) to wait and see."

When asked about the tools the Federal Reserve has to deal with supply chain disruptions, Powell replied: "We don't have these tools at all." He added that it depends on the government and the private sector.

Trump's calls for interest rate cuts will not affect us at all. There is no request for a meeting with the president.

Powell said that Trump's calls for interest rate cuts "will not affect our work at all." He said: "We will always do the same thing, that is, use our tools to promote maximum employment and price stability for the benefit of the American people. We will always only consider economic data, the outlook, and the balance of risks, and that's all."

A reporter asked Powell how he reacted to Trump's previous statement that he would not remove him from his position as Fed Chairman. Powell replied that he had nothing to say.

Another reporter asked whether Powell is still likely to continue serving as a Fed governor after his term as Fed Chairman ends in May 2026. Powell also said that he has nothing to comment on this.

When asked why he has not met with Trump during Trump's new presidential term, Powell replied: "I have never asked for a meeting with any president and never will."

The growth path of government debt is unsustainable.

When asked whether the Trump administration's spending cuts may impact economic growth, Powell said that the Federal Reserve takes the budget actions of Congress for granted. Congress does not need the Fed's advice on fiscal policy, just as the Fed does not need Congress's advice on monetary policy.

However, Powell reiterated the warning that the fiscal path is unsustainable. He said:

"One thing we know clearly is that the current growth trajectory of government debt is unsustainable. It's not that the debt itself is at an unsustainable level, but the growth path is unsustainable."

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