Uncertainty Today Is Unusually Elevated (Uncut) 03-20-2025

Fed Chair Jerome Powell: ‘Uncertainty Today Is Unusually Elevated’

At today’s meeting, the committee decided to maintain the target range for the federal funds rate at four and a quarter to four and a half percent. Looking ahead, the new administration is in the process of implementing significant policy changes in four distinct areas, trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy.

While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high. As we parse the incoming information, we’re focused on separating the signal from the noise as the outlook evolves. As we say in our statement, in considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will assess incoming data, the evolving outlook, and the balance of risks.

We do not need to be in a hurry to adjust our policy stance, and we are well positioned to wait for greater clarity. The median participant projects that the appropriate level of the federal funds rate will be 3.9 percent at the end of this year and 3.4 percent at the end of next year, unchanged from December. While these individual forecasts are always subject to uncertainty, as I noted, uncertainty today is unusually elevated, and, of course, these projections are not a committee plan or a decision.

Policy is not on a preset course. As the economy evolves, we will adjust our policy stance in a manner that best promotes our maximum employment and price stability goals. If the economy remains strong and inflation does not continue to move sustainably toward 2 percent, we can maintain policy restraint for longer.

If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly. 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. At today’s meeting, we also decided to slow the pace of decline in our balance sheet.

Since we began balance sheet runoff, our securities holdings have declined by more than $2 trillion. While market indicators continue to suggest that the quantity of reserves remains abundant, we have seen some signs of increased tightness in money markets. Beginning in April, the monthly cap on Treasury redemptions will be lowered from $25 billion to $5 billion.

Consistent with the committee’s intention to hold primarily Treasury securities in the longer run, we are leaving the cap on agency securities unchanged. Some near-term measures of inflation expectations have recently moved up. We see this in both market and survey-based measures, and survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor.

So some of it, the answer is clearly some of it, a good part of it is coming from tariffs, but we’ll be working, and so will other forecasters, to try to find the best possible way to separate non-tariff inflation from tariff inflation. As I’ve mentioned, it can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away quickly without action by us, if it’s transitory. And that can be the case in the case of tariff inflation.

I think that would depend on the tariff inflation moving through fairly quickly, and it would depend critically as well on inflation expectations being well anchored, longer-term inflation expectations being well anchored. There’s always an unconditional possibility of a recession. It might be broadly in the range of one in four at any time, if you look back through the years.

It could be within 12 months, a one in four chance of a recession. So the question is whether this current situation, those possibilities are elevated. I will say this, we don’t make such a forecast.

If you look at outside forecasts, forecasters have generally raised, a number of them have raised their possibility of a recession somewhat, but still at relatively moderate levels, still in the region of the traditional, because they were extremely low. If you go back two months, people were saying that the likelihood of a recession was extremely low. So it has moved up, but it’s not high.

Matt Egan with CNN. Thank you, Chair Powell. The Fed statement released today removed the line that previously said the committee judges at the risk to achieving its employment and inflation goals are roughly in balance.

Can you explain the decision to remove that line? Does it mean that you’re now more concerned about inflation or about employment? Actually, it does not mean either of those things. Sometimes with language, it lives its useful life and then we take it off. And that was the case here.

There’s really not meant to be any signal here. Over the past year, conveying the sense of the balance of risks was important, that they be in balance or close to being in balance. That was useful as we approached liftoff, if you remember, but we’re past that.

I’m sorry, beginning to cut. So we just took it out. I actually would say that the more important thing now about risks, and this is in pages like 10, 11, 12 of the SCP, if you look, participants widely raised their estimate of the risks to our uncertainty, but also the risks to growth and our employment and inflation mandates.

That’s a more salient point now than whether they’re in balance.