Jerome Powell used his final policy news conference as Fed chair to draw a hard line around rate cuts: the Fed wants to see the backside of both the energy and tariff shocks before even considering easing. The energy surge, he said, has not yet peaked.
That is a material shift in tone because Powell also said the Fed is already near the “high end of neutral” and “slightly restrictive,” a place he called appropriate for waiting. The policy rate is positioned to move either way, but the bar for cuts is no longer just softer inflation data; it is proof that two supply shocks have stopped pushing prices higher.
- Powell said the U.S. economy remains “quite resilient” and should keep growing above 2% this year.
- He credited solid consumer spending and data center investment for keeping growth firm.
- He said tariff-driven goods inflation should fade over the year, but energy prices are still moving the wrong way.
The tension is straightforward: the economy is strong enough that the Fed does not need to rescue it, but inflation is messy enough that it cannot declare victory. Powell said the labor market is not a source of inflation and consumer spending is holding up, yet he also warned that core inflation could rise and that Middle East developments are adding risk on both sides of the Fed’s mandate.
Oil is the swing factor. If the Strait of Hormuz stays closed, Powell said higher gasoline prices would pull disposable income out of consumers’ pockets, cutting spending elsewhere and delivering a hit to GDP. The policy problem is that weaker spending could cool demand at the same time higher fuel costs lift inflation.
The Fed is also entering a leadership handoff with its reaction function under scrutiny. Powell said new leadership is likely to be in place by June, and it remains unclear whether the statement’s easing bias survives; developments over the next 30 to 60 days could alter the picture.
