Federal Reserve Chairman Jerome Powell: The U.S. economy remains in good shape, the impact of several policy changes from the Trump administration is still unclear

According to the Zhitong Finance APP, on Friday, Federal Reserve Chairman Jerome Powell stated at the 2025 U.S. Monetary Policy Forum held in New York that the U.S. economy remains in good shape. However, due to the unclear impact of several policy changes implemented by the Trump administration on the economy, Federal Reserve policymakers have chosen to adopt a wait-and-see approach.

Powell pointed out that he and other Federal Reserve officials are closely monitoring the changes in trade, immigration, fiscal policy, and regulation under the Trump administration. Some of these policy adjustments have already been implemented, such as the increased tariffs on Chinese goods, while others, like the tariff measures on Mexico and Canada, have seen changes. Powell emphasized that due to the high uncertainty surrounding these changes, the Federal Reserve does not need to rush to adjust its policies at this time.

Uncertainty Remains Regarding the Economic Impact of Policy Changes

In his speech, Powell stated, "The net effect of these policy changes will determine the direction of the economy and the path of monetary policy. When analyzing the latest data, we focus on distinguishing valuable information from market noise. We do not need to rush to act; rather, we should patiently wait for clearer economic signals."

Currently, the U.S. economy is still in an adjustment period regarding tariff policy changes. Which goods and countries will face increased tariffs, the duration of these tariffs, and the specific tax rates have not yet been fully determined. Powell believes that ultimately, the related impacts will affect exporters, importers, retailers, and even consumers, but the specific effects remain to be observed.

He added that economic theory suggests that the impact of tariffs typically manifests as a one-time increase in price levels, and policymakers should view this rationally. However, if tariff policies evolve into a series of sustained measures accompanied by retaliatory tariffs, or if the magnitude of the tariffs is significant, the impact will be more profound. Therefore, the Federal Reserve is particularly focused on long-term inflation expectations to ensure they do not spiral out of control due to short-term inflation fluctuations.

Monetary Policy Does Not Follow a Fixed Path; Economic Conditions Determine Policy Direction

Powell reiterated that the Federal Reserve's monetary policy is not on a "preset path," but is flexibly adjusted based on economic conditions. If the economy continues to grow steadily, but inflation fails to stabilize at the 2% target, the Federal Reserve may keep interest rates unchanged. However, if the labor market deteriorates or inflation cools faster than expected, the Federal Reserve may lower interest rates to respond to economic changes.

He emphasized, "The cost of remaining cautious is very low. The current economic situation is good, and we do not actually need to take any action, so we can choose to wait and should wait."

Although the number of new jobs added in February was only 151,000, below economists' expectations, Powell did not express excessive concern. He noted that since September of last year, the average number of new jobs added per month in the U.S. has been 191,000, indicating that the labor market remains solid and balanced. Currently, the U.S. unemployment rate remains low at 4.1%, and while wage growth is still faster than inflation, it has become more sustainable compared to the early recovery period from the pandemic.

Powell stated, "As wage growth slows and the supply-demand relationship in the labor market improves, inflation pressure is no longer a major source."

Challenges Remain on the Path to Returning Inflation to the 2% Target Powell reiterated that the Federal Reserve's core goal remains to bring inflation down to 2%. He stated that while inflation data for certain recent months has been high, the Federal Reserve will not overreact to short-term fluctuations. "The path back to the 2% inflation target is not smooth, and this trend will continue. There are monthly fluctuations in inflation data, and we will not react excessively to one or two data points that exceed expectations."

He expects that inflation rates in the housing services and non-housing services sectors will improve in the coming months.

Federal Reserve Initiates Review of Monetary Policy Framework

Powell also mentioned that the Federal Reserve has initiated the second round of a five-year review of its monetary policy framework at the January Federal Open Market Committee (FOMC) meeting. He emphasized that the 2% inflation target will not change, but policymakers will reassess the long-term target statement, monetary policy strategy, and the central bank's communication methods.

This review will particularly focus on the effectiveness of the framework adjustments made in 2020. This includes the effectiveness of policies in a low-interest-rate environment and the policy options that moderately allow for overshooting after a prolonged period of low inflation.

Additionally, the Federal Reserve will evaluate its post-meeting statements, economic projections, and compare its communication methods with those of other major central banks. "We will summarize the experiences of the past five years and adjust our approach as necessary to better serve the American public, as we are accountable to them," Powell stated, adding that he expects this assessment to be completed by the end of summer.

Federal Reserve Policy Outlook and Market Expectations

This speech was Powell's last public address before the Federal Reserve enters its quiet period. In his remarks, he discussed changes in the economic environment, including adjustments in trade policy, ongoing inflation pressures, and declining consumer confidence.

The Federal Reserve's Federal Open Market Committee will hold a meeting from March 18 to 19, and the Federal Reserve's quiet period will begin this Saturday. Market trading data shows that, according to the CME FedWatch Tool, investors believe there is a 97% probability that the Federal Reserve will keep the federal funds rate unchanged at the March meeting