'I'm Going To Say No': Powell Rejects Idea Fed Would Rescue Falling Markets (UPDATED)

Editor's note: This article has been updated to include remarks from Federal Reserve Chair Jerome Powell's Q&A session.

Federal Reserve Chair Jerome Powell hinted the growing risk of higher inflation and slower growth tied to unexpectedly large trade tariffs rolled out earlier this month by the Donald Trump administration.

In remarks delivered Wednesday at the Economic Club of Chicago, Powell said that growth has softened in the first quarter of 2025, while inflation is “still running a bit above our 2% objective.”

The Fed Chair highlighted that surveys from households and businesses showed a notable deterioration in sentiment.

Uncertainty around trade policy has been the dominant driver, causing many forecasters to cut their full-year outlooks. Nevertheless, most estimates still point to moderate, positive growth ahead.

“The new administration is in the process of implementing a substantial policy changes in four distinct areas: Trade immigration, fiscal policy and deregulation. These policies are still evolving and their effects on the economy remain highly uncertain,” Powell said.

Inflation Eased But Tariffs Pose Fresh Risks

Inflation is cooling, but not fast enough. Total Personal Consumption Expenditures (PCE) prices—the Federal Reserve's preferred inflation gauge—rose 2.3% year-over-year through March. Core PCE, which excludes food and energy, climbed 2.6%.

These figures are well below the 2022 highs but still exceed the Fed's 2% target. Powell noted that inflationary progress continues "at a gradual pace," and that the central bank remains alert to any threats of reacceleration.

"Tariffs are highly likely to generate at least a temporary rise in inflation," he said.

While some of that impact may be short-lived, Powell cautioned that it could persist depending on how long the price pressures take to pass through the economy.

The Fed's dual mandate—maximum employment and price stability—could be tested in the months ahead if inflation continues to rise even as growth slows. Should the two goals come into conflict, Powell said the Fed would weigh how far the economy is from each and the likely time needed to meet both targets.

“For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said.

Powell Fields Questions On Tariffs, Labor, Market Volatility

During the Q&A session, Powell reiterated the Fed's role in ensuring that inflation shocks from tariffs remain temporary. "Our role is to make sure that this will be a one-time increase in prices and not something that turns into an ongoing inflation process," he said.

Asked whether tariffs could result in a supply shock, Powell acknowledged the risk of persistence. "It can take time to resolve, and what would have been a one-time inflation shock could be extended—perhaps more persistent—and we would worry about that."

On immigration and labor market dynamics, Powell noted a decline in immigration could tighten labor supply, but layoffs in government-funded sectors have not yet materially affected the national workforce of 170 million people. "We're really hearing significant layoffs in cities with universities and research hospitals," he said, though the total economic impact remains hard to quantify.

Regarding fiscal policy, Powell called the federal debt "unsustainable in the long term," while emphasizing that "no one really knows how much further we can go." He underscored the importance of bipartisan cooperation to address ballooning costs in Medicare, Medicaid and Social Security.

On market speculation about a so-called "Fed put"—the idea that the central bank would intervene if markets plunge—Powell was unequivocal: "I'm going to say no."

While he acknowledged that markets are currently facing high levels of uncertainty, especially around policy changes and inflation, he made clear that the Fed's decisions are not driven by equity market volatility alone.

He indicated that both equity and fixed-income markets are functioning in an orderly way, dismissing speculations of Treasuries dumping from foreign investors.

“Market is processing historically unique developments,” he said.

The Fed Chair also confirmed that the central bank stands ready to provide U.S. dollars to foreign central banks via its standing swap lines in the event of global liquidity strains.

As for artificial intelligence, Powell described the technology's potential as "truly remarkable," but cautioned that its long-term labor impact remains uncertain. "It may be the case that AI replaces more jobs than it creates—we just don't know," he said.

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Photo courtesy of the Federal Reserve.