US job growth slows while inflation risks persist, keeping the Federal Reserve in a wait-and-see stance
Federal Reserve Chair Jerome Powell stated on Friday that the US central bank will wait for greater clarity before adjusting interest rates, according to CNBC.
Speaking at the US Monetary Policy Forum, Powell said the Federal Reserve is assessing the impact of US President Donald Trump’s policy changes, including those in trade, immigration, fiscal policy, and regulation.
He reiterated that the Fed is in no rush to act, despite market volatility and economic uncertainty in the US.
“The White House is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation,” Powell said.
“It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy.” He noted that the level of uncertainty remains high and that the Fed is “focused on separating the signal from the noise as the outlook evolves.”
He added, “We do not need to be in a hurry and are well positioned to wait for greater clarity.”
US financial markets have been volatile as Trump’s shifting trade policies continue to create uncertainty.
As reported by the CME Group’s FedWatch gauge, traders have priced in three quarter-percentage-point rate cuts by the end of the year, starting in June.
However, Powell’s remarks suggest that the Fed will remain in a wait-and-see stance before making any changes.
“Policy is not on a preset course,” he said. “Our current policy stance is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.”
Powell’s comments came as recent US economic data signalled mixed conditions.
The US Department of Labor reported that nonfarm payrolls increased by 151,000 in February, falling short of the 170,000 forecasted by economists polled by Dow Jones.
The unemployment rate ticked higher to 4.1 percent as household employment dipped. Powell viewed this data as further evidence that “the labour market is solid and broadly in balance.”
He also stated, “Wages are growing faster than inflation, and at a more sustainable pace than earlier in the pandemic recovery.”
Despite these US labour market conditions; inflation remains a key concern.
Powell said that recent sentiment surveys indicated unease about inflation, with the Fed’s preferred gauge showing 12-month inflation at 2.5 percent, or 2.6 percent when excluding food and energy.
“The path to sustainably returning inflation to our target has been bumpy, and we expect that to continue,” he said.
Fed Governor Adriana Kugler, speaking separately in Portugal on Friday, emphasized inflation risks, stating, “It could be appropriate to continue holding the policy rate at its current level for some time.”
US economic data has also pointed to a widening trade deficit. The US Bureau of Economic Analysis reported that the US trade deficit increased from US$98.1bn in December to US$131.4bn in January, as imports grew faster than exports.
Meanwhile, the Atlanta Federal Reserve’s GDP tracker indicated a potential 1.5 percent contraction in the first quarter, raising concerns about slowing US economic growth.
Financial markets have responded to these developments with increased volatility. As per The Times, economists have revised their 2025 US forecasts, adjusting expectations for growth amid policy shifts and market instability.
According to Reuters, Morgan Stanley lowered its US economic growth forecast for 2025, attributing the revision to the impact of tariffs and a tight labour market contributing to inflation pressures.
As the US economy faces these uncertainties, Powell reaffirmed that the Fed’s policy stance is prepared to handle risks.
The Federal Reserve’s next policy meeting, scheduled for March 18-19, is expected to keep the overnight target rate between 4.25 percent and 4.5 percent.
