Powell: The Federal Reserve is not in a hurry to adjust policies, the statement on inflation does not send a signal, and I have not contacted Trump yet

On Wednesday, January 29, Federal Reserve Chairman Jerome Powell made it clear at a press conference that the FOMC does not need to rush to adjust its monetary policy stance, as inflation remains somewhat elevated, contrasting with Trump's call for an "immediate rate cut" at the Davos Forum.

In his first press conference after Trump took office, Powell stated that the overall U.S. economy is strong, the labor market has cooled but remains robust, and a wide range of indicators suggest that the job market is balanced, with economic activity continuing to expand at a solid pace.

Powell's Explanation for Pausing Rate Cuts

During the Q&A session, Powell repeatedly emphasized that the Federal Reserve is not in a hurry to adjust monetary policy. He believes that the current situation is "very good for both policy and the economy," long-term inflation expectations seem well anchored, and the risks to the dual mandate of inflation and employment are roughly balanced:

"Given that our policy stance is already much more accommodative than before, and the U.S. economy and job market remain strong, we do not need to rush to adjust our policy stance."

Powell also stated, "The Federal Reserve still expects inflation to improve further." Market commentary firm Vital Knowledge's editor Adam Crisafulli believes that the press conference seemed more dovish than the Federal Reserve's policy statement:

"Powell essentially said that the adjustment to the statement (i.e., the removal of language regarding inflation progress) should not be interpreted as a hawkish shift. At the press conference, Powell acknowledged that inflation has significantly improved over the past two years, getting closer to the 2% target, while inflation expectations remain anchored."

Powell's Comments on When to Restart Rate Cuts

Powell made it clear that the Federal Reserve needs to see progress in the year-on-year data for (PCE) inflation:

"The Federal Reserve will not take action until we see more evidence. Before any policy adjustment, inflation needs to make real progress, or the labor market needs to show some weakness before we would consider making adjustments."

However, when asked whether the Federal Reserve needs to wait until the inflation rate is completely down to 2% before cutting rates again, Powell stated that this is not necessary, saying, "The Federal Reserve just needs to see further progress and does not need to wait until it falls back to 2% before cutting rates again."

Powell also stated that the Federal Reserve's monetary policy is not on a pre-set path. In terms of responding to risks and uncertainties, the Federal Reserve is prepared for both maintaining a more restrictive monetary policy and easing policy:

"We know that reducing policy restrictions too quickly or too much could hinder the progress of inflation (cooling). At the same time, reducing policy restrictions too slowly or too little could excessively weaken economic activity and employment.

The Federal Reserve will assess upcoming data, the evolving outlook, and the balance of risks to adjust its policy stance.

If the economy remains strong, and inflation does not continue to sustainably approach 2%, we can maintain the policy restrictions for a longer period. If the labor market unexpectedly weakens, or inflation declines faster than expected, we can ease policy accordingly."

Will interest rate cuts restart in March? Powell neither said "no" nor "yes"

When specifically asked whether there would be a rate cut in March, Powell stated that disinflation (i.e., cooling inflation) is still "progressing slowly and sometimes unevenly," and the general consensus is that the Federal Reserve does not need to rush to further ease policy.

Some analysts believe that Powell's repeated emphasis on "not rushing to adjust policy" may indicate that unless future data shows significant weakness, there will be a pause in rate cuts in both January and March this year.

However, since Powell also highlighted the significant uncertainty surrounding the economic impact of Trump's policies, Krishna Guha, head of global policy and central bank strategy at investment bank Evercore ISI, believes the likelihood of a rate cut in March has decreased:

"While we still do not rule out the possibility of a rate cut in March, this policy statement and Powell's emphasis on the need to observe the impact of Trump's policies indeed suggest that the broader group of Federal Reserve officials tends to view June as the next decision point."

Marvin Loh, senior global macro strategist at State Street Bank, believes that Powell still seems to hold the view that U.S. monetary policy remains sufficiently restrictive, neither excessively pushing up inflation nor allowing the economy to achieve its goals:

"Whether this is a long-term pause in rate cuts, or even a declaration of the complete end of this rate-cutting cycle, will depend on future economic data. However, the threshold for the Federal Reserve to completely shift towards rate hikes remains quite high."

Powell comments on the White House: He hasn't contacted Trump since the Davos forum called for rate cuts

Powell has always been quite cautious regarding topics surrounding the White House, Trump, and politics. During this press conference, he repeatedly told those trying to "break his defense," "I will not respond to or comment on the president's remarks, as it is inappropriate for me to do so."

Powell acknowledged that since Trump's remote speech at the Davos forum last week, where he called for the Federal Reserve to immediately lower interest rates, he has not spoken with the president, and the Federal Reserve is evaluating Trump's executive orders.

When asked whether Trump's frequent threats of tariffs would lead Powell to reconsider his economic growth forecasts, Powell again avoided the question, stating, "We do not know what will happen with tariffs, immigration, fiscal policy, or regulatory policy," and "I hope to avoid making even indirect comments on tariff actions."

However, he emphasized that Trump's decisions around these core issues currently create significant uncertainty:

"The potential impact of tariffs could be very, very broad.

We do not know how long tariffs will last, how large they will be, or which countries will be affected. We do not know what retaliatory measures may arise. We do not know how tariffs will transmit through the economy to consumers. This indeed remains to be seen.

We need to clarify what these policies are before we can begin to reasonably assess their impact on the economy."

Powell admitted that the Federal Reserve can only continue to do what it does best, responding to changing circumstances with a consistent methodology:

"The public should believe that we will continue to work as usual, focusing on using our tools to achieve our dual mission and truly working hard.

The best thing we can do is what we have already done, which is to research and pay attention to this issue, review historical experiences, read literature, think about potentially important factors, and then wait and see.

Uncertainty always accompanies us. Clearly, it is human nature not to fully recognize or consider the possibility of extreme events occurring. There are too many variables, and we can only wait and see."

Powell also stated that there is "every reason to expect" that the decline in the scale of cross-border immigration will "continue to exist." He would not discuss Trump's plan to lower energy costs through expanded energy production to curb inflation, noting that the uncertainty of trade policies during Trump's previous presidential term seemed to have impacted corporate investment decisions.

Some analysts suggest that Powell can still buy himself some time by stating that it is too early to assess new policies, but as Trump's policies unfold and clarify, the time for Powell to maintain a "ambiguous" stance is running out.

What else did Powell say?

Commenting on the market:

Powell stated that the recent AI sell-off in financial markets is unsustainable and cannot persist stubbornly. At this stage, many indicators suggest that asset prices are high, largely due to the influence of technology and AI. Overall financial conditions may be loose, but there are both good and bad aspects.

AI is a big deal for the stock market. However, the Federal Reserve is truly concerned about macro developments, meaning that significant changes in financial conditions will persist for some time. Powell downplayed the macro impact of DeepSeek, which triggered a plunge in European and American stock markets this week, but stated that the Federal Reserve is paying attention to this topic.

On Bitcoin:

When asked about the risks of cryptocurrencies and whether he is concerned that speculation in this asset class could harm people, Powell said that the Federal Reserve's role regarding cryptocurrencies is to pay attention to banks, which are currently able to provide services to cryptocurrency customers.

He also stated that the Federal Reserve "does not oppose innovation," and they "certainly" do not want to take actions that would lead banks to terminate services to "perfectly legal" customers simply due to excessive aversion to regulation.

Sticking to the short-term inflation target:

Powell reiterated: "We will not quickly change the 2% inflation target for central banks."

Specifically, in the latest review of the monetary policy framework, the long-term target of 2% will be retained and will not be the focus of the review. His reasoning is that if the current 2% target cannot actually be achieved, then changing it is meaningless.

However, some analysts also suggest that Powell's reasoning for not changing the 2% target is that "it cannot be achieved now," seemingly laying the groundwork for a willingness to reconsider this issue in the long run.

Powell indicated that the Federal Reserve has begun discussing the evaluation of the policy framework, intending to complete the evaluation process by late summer 2025.

Comments on neutral interest rates:

Powell reiterated that "you cannot know exactly" where the neutral interest rate is, but he believes that the current Federal Reserve policy rate is significantly above the neutral rate. This seems to imply that the Federal Reserve will inevitably continue to cut interest rates, and this round of rate cuts is not yet over