Federal Reserve Chair Jerome Powell on May 7 said “the economy is doing fine” during a news conference after the Federal Open Market Committee announced it would keep its key rate steady at 4.25% to 4.5%.
The decision marks a continuation of the Fed’s wait-and-see approach as its members observe ongoing economic uncertainty. Despite concerns that President Donald Trump’s tariffs and the resulting decline in orders on imports to the U.S. could lead to “empty shelves” and higher prices for consumers, Powell said he doesn’t see their impact showing up in the data yet. He repeatedly referenced ongoing uncertainty.
“The right thing to do is await further clarity,” Powell said. “Usually things clarify and the appropriate direction becomes clear. That’s what usually happens. Right now, it’s very hard to say what that would be. In the meantime, the economy is doing fine.”
During his news conference, Powell was pressed on consumer sentiment and potential signs of looming economic turmoil.
“We see sentiment, there are concerns that higher prices may be coming, or things like that,” Powell said. “People are worried now about inflation. They’re worried about a shock from the tariffs. But they really haven’t, that shock hasn’t hit yet. We’re going to be looking at not just the sentiment data, but also the real economic data as we assess what it is we should do.”
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However, James Knightley, chief international economist at Dutch bank ING, said in a note after the meeting the Fed is likely paying attention to declining consumer sentiment.
“The scale of the slump in consumer and corporate sentiment to levels historically consistent with recession will be of concern to the Fed,” Knightley said. “Economic uncertainty and government spending curbs mean that trade deals and tax cuts need to be agreed quickly to prevent a stagflation infused downturn.”
Consumer sentiment fell in the U.S. for the fourth month in a row in April as Americans question what trade tensions will mean for their wallets. But Wednesday, Powell reaffirmed the Fed’s dual mandate to address rising unemployment and inflation. Powell signaled it will take an increase in either or both before it adjusts rates.
“People are feeling stress and concern, but unemployment hasn’t gone up, job creation is fine. Wages are in good shape,” Powell said. “People are not getting laid off at high levels. Initial claims for unemployment are not increasing in any kind of impressive way. So, the economy itself is still in solid shape.”
March data from the Personal Consumption Expenditures, one of the indexes the Fed uses to measure inflation, reported it rose 2.3% from a year earlier. The Fed says it adjusts its policy to guide the inflation rate towards its 2% year-over-year target.
Although inflation is already elevated and expected to move higher, the Fed will need evidence of a material downturn in the job market before it cuts rates, Bankrate Chief Financial Analyst Greg McBride said in a note Wednesday.
The decision to leave rates unchanged for a third straight meeting shows the Fed will keep waiting to see how unemployment and inflation are affected in the coming months, making for “an interesting summer,” McBride said.
“It is tempting to romanticize the idea of lower interest rates, particularly from a borrowing perspective. But the reason for lower interest rates is very important,” he said. “We want interest rates to come down because inflation pressures are easing, not because the economy is weakening. Unfortunately, if rates do come down in the coming months, it is more likely because the economy weakened.”
Reach Rachel Barber at rbarber@usatoday.com and follow her on X @rachelbarber_
This article originally appeared on USA TODAY: Jerome Powell says ‘the economy is doing fine’ after Fed decision
