Federal Reserve Chair Jerome Powell has warned that the impact of current economic policies—especially new tariffs—could push the U.S. economy off track from the Fed’s main goals of stable inflation and strong employment. He noted that the Fed may not be able to make much progress toward its targets for the rest of this year, although there’s hope for improvement next year.
Powell explained that the recent tariffs are even larger than what the Fed had predicted in its worst-case scenarios. These trade policies, especially those disrupting auto industry supply chains, could result in inflation sticking around longer than expected. While the Fed’s main role is to keep inflation expectations under control, Powell stressed that they are working to ensure that this current price spike doesn’t become a long-term problem.
He also highlighted that while immigration has helped fuel economic growth in recent years by boosting the labor supply, both the demand for workers and the number of new workers have now stagnated. That’s why unemployment has remained steady. Powell reassured that current wage growth seems sustainable and isn’t putting extra pressure on inflation. Long-term, he said, immigration doesn’t seem to significantly affect inflation.
Powell acknowledged a tricky situation may arise soon: the Fed could face growing tension between its two mandates—keeping inflation low and ensuring strong employment. If those goals come into conflict, it will be very challenging to decide which one to prioritize. He also warned that markets should prepare for more volatility ahead as these uncertainties play out.
Fed Chair Jerome Powell said the U.S. federal debt is on an unsustainable path, though it hasn’t yet reached a crisis level. He pointed out that running large deficits during times of full employment is a serious issue that the country must address. Contrary to political debates, Powell emphasized that domestic discretionary spending is not the real problem—it’s already a small and shrinking part of the federal budget.
He assured that the U.S. banking system remains strong, well-capitalized, and able to handle potential shocks. While commercial real estate is facing challenges, the financial system is already working through them. However, the private credit market hasn’t yet faced a major stress event, and the Fed is closely monitoring it.
Powell urged the completion of the Basel III banking rules, calling them important international standards that benefit everyone. He believes the U.S. is close to reaching a solid agreement on this.
On crypto, Powell acknowledged its growing role and said a legal framework for stablecoins is necessary. While there may be some loosening of rules to support innovation, he stressed it must not come at the cost of weakening the safety of banks.
Federal Reserve Chair Jerome Powell emphasized that the Fed’s independence is protected by law and enjoys strong bipartisan support. He stated that the central bank will not be swayed by political pressure and does not believe the Supreme Court case concerning independent agencies will affect the Fed.
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