Tariffs, Fed remains on "hold" - US economic growth slows amid trade uncertainties
United States economic growth appears to be slowing, with consumer spending growing modestly and a rapid increase in imports to avoid tariffs expected to weigh on gross domestic product estimates, US Federal Reserve Chairman Jerome Powell said.
Outside analysts predict that growth will continue to slow through the year, as "households and businesses report a significant decline in confidence and increased uncertainty about the outlook, largely reflecting trade policy concerns," Powell said, referring to rapid changes in import tariffs imposed by President Donald Trump.
The Federal Reserve chief noted that the impact of these and other policy changes "is still evolving" but is likely to be "larger than expected" given the scope of tariffs that Trump appears to favor, although negotiations between the U.S. and other countries could eventually reduce them.
For now, the Federal Reserve may keep the benchmark interest rate steady "while waiting for greater clarity before considering any change in policy stance," Powell said.
The Fed's target range is currently set between 4.25% and 4.5%, where it has been since December after a series of rate cuts late last year. Since then, progress in returning inflation to the 2% target has slowed.
Despite the uncertainty of Trump's tariff announcements, a judgment about their potential impact will be central to the Fed's upcoming debate on potential changes.
While measures of inflation expectations over the short term "have risen significantly," due to tariffs, Powell said that the longer-term forecasts that the Federal Reserve tracks more closely remain consistent with the inflation target.
The Fed chief also said the labor market remains "in good shape" and "close to maximum employment."
But if the Federal Reserve is caught between high inflation and a rising unemployment rate, "we will consider how far the economy is from each objective, as well as how long it will take to resolve these problems," Powell said.
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