The US president’s on-again, off-again approach to tariffs has caused a surge in volatility, with sharp movements in both US and global financial markets.
Before a de-escalation this week, steep tariffs on China and retaliatory measures by Beijing also raised fears of potentially major trade disruptions between the two countries.
“We may be entering a period of more frequent, and potentially more persistent, supply shocks – a difficult challenge for the economy and for central banks,” Powell told his colleagues in Washington, according to prepared remarks.
In the speech, which came at the start of the Fed’s first public strategy review for five years, Powell said the economic landscape had changed since the last meeting, when interest rates were far lower than they are today.
The Fed’s key lending rate currently sits at between 4.25 percent and 4.50 percent as the policymakers look to cool inflation without pushing up unemployment.
“Longer-term interest rates are a good deal higher now, driven largely by real rates given the stability of longer-term inflation expectations,” he said.
The higher rates could also reflect fears of higher volatility going forward, he added.
While the Fed could make some small changes to its approach to monetary policy, its key long-term inflation target would remain unchanged, Powell told his colleagues.
“Anchored expectations are critical to everything we do, and we remain fully committed to the two percent target today,” he said. (AFP)
