Federal Reserve chair Jay Powell played down concerns over US growth after U-turns by Donald Trump’s administration, disappointing jobs numbers and a tumultuous week in financial markets.
Powell on Friday said the world’s largest economy remained “in good shape” despite the elevated “uncertainty”, after the president launched an aggressive agenda of tariffs and spending cuts.
“We are focused on separating the signal from the noise as the outlook evolves,” Powell said, adding the Fed was in no “hurry” to cut interest rates and was “well positioned to wait for greater clarity”.
Powell’s comments came as the blue-chip S&P 500 was on course to end the week down about 4 per cent, its worst run since early September. US stocks have pulled back sharply in recent weeks after gloomy economic reports prompted worries Trump’s tariffs will slow growth.
Corporate executives warned the chaotic pivots in trade policy, including a major reversal this week on the administration’s plans to tariff goods from Canada and Mexico, had made it difficult to run their businesses, and could stymie fresh investments into the US.
The US is “at a crossroads, economically”, said Charles Lemonides, chief investment officer at ValueWorks, a New York-based hedge fund. “We don’t know where policy is going and it creates huge turmoil.”
The Bureau of Labor Statistics on Friday released data showing the US created 151,000 jobs in February, falling short of the 160,000 forecast by economists polled by Reuters.
The unemployment rate was 4.1 per cent last month, compared with expectations it would hold steady at 4 per cent.
“Investor sentiment was euphoric after the election but there’s been a whole lot of cold water thrown on that euphoria over the past month,” said Jim Tierney, head of the concentrated US growth fund at AllianceBernstein.
“Powell is saying everything is fine, but that’s not what consumer sentiment is saying and it’s not where we’ve heard business sentiment to be, either,” he added.
The Fed chair had recently signalled the central bank would keep its main interest rate at its current range of between 4.25 per cent and 4.5 per cent as it assessed the impact of Trump’s policies.
But markets are increasingly betting the Fed will be forced to cut rates more aggressively this year than thought, dragging Treasury yields lower and weighing on the dollar.
The US dollar index, which tracks the greenback’s strength against six other currencies, has lost 4.2 per cent this year.
Asked what would prompt the Fed to respond to tariffs imposed on US imports, Powell said on Friday: “What would really matter is what’s happening with longer-term inflation expectations and how persistent are the inflationary effects.”
Some economists have warned Trump’s spending cuts and the slashing of the federal workforce through the so-called “Department of Government Efficiency”, led by billionaire Elon Musk, could also be a drag on the economy.
Earlier in the week, Trump rolled back some of the tariffs he imposed on Canada and Mexico in an attempt to soothe markets. On Friday, he acknowledged some economic pain might come from his policies and their sometimes chaotic rollout.
“There could be some disturbance, a little bit of disturbance,” the president said, repeating a line from his speech to Congress on Tuesday night. “There will always be changes and adjustments.”