[Financial News]
Jerome Powell, the Chair of the U.S. Federal Reserve, held a press conference on the 19th (local time) at the Federal Reserve headquarters in Washington after concluding the two-day Federal Open Market Committee (FOMC) meeting. On this day, the Fed decided to hold the benchmark interest rate steady at 4.25-4.5%, and, while hinting at the possibility of two more rate cuts this year, Powell emphasized concerns over inflation. Meanwhile, the New York stock market soared amid expectations of rate cuts.
Powell indicated that if the U.S. economy maintains its solid trajectory, the current high-interest rates will persist. He emphasized the commitment to high interest rates amid forecasts that President Trump’s second-term tariff policies could stoke short-term inflation expectations. However, he also predicted that with a balance between inflation and economic slowdown, two more rate cuts are expected this year.
The Fed concluded the two-day FOMC meeting by keeping the benchmark rate at 4.25-4.50%. The FOMC’s rate projections, shown in a dot plot, indicated expectations for two 0.25% point rate cuts this year, two next year, and one in 2027.
During the press conference, Powell stated that as long as the U.S. economy remains robust, maintaining the current high-interest rates will not be burdensome for the Fed. He mentioned that if inflation does not consistently move toward a sustainable 2% while the U.S. economy remains solid, the Fed would need to extend its tightening policy. Conversely, he noted the possibility of policy easing if the labor market suddenly weakens or if inflation falls faster than expected.
Powell, who had previously been reticent about President Trump’s tariff policies, warned that tariffs could stimulate inflation. He expressed concerns that tariffs are raising short-term inflation expectations, as observed in both market and survey data. According to Powell, survey respondents indicated that tariffs are a major driving force for both consumers and businesses.
He noted the potential for tariffs to delay the decline in inflation, expressing pessimism that further improvements in inflation could be postponed by the Trump tariffs. Powell emphasized that the primary factor behind the rise in expected inflation is indeed the Trump tariffs.
On this day, the Fed raised its inflation forecast based on the core personal consumption expenditures (PCE) price index to 2.8%, a 0.3 percentage point increase from December last year.
Powell dismissed concerns about a U.S. recession, stating that despite recent market voices worrying about a recession, the likelihood of such a serious scenario materializing is still not high. He reiterated that the Fed does not make such forecasts and does not comment on recession risks.
Although external projections suggest that recession concerns are increasing, Powell noted that the severity of these predictions remains moderate. He pointed out that while voices concerned about a recession have grown, they do not yet reach significant levels.
Powell left a caveat, mentioning that recessions can occur unexpectedly and that regardless of circumstances, there is a 25% chance of the economy entering a recession.
Reconfirming his optimistic outlook on the U.S. economy, Powell acknowledged that while inflation expectations increased, GDP growth rate projections were lowered to 1.7%, a 0.4 percentage point decrease from December last year. He assessed that the U.S. economy remains “generally solid” despite the softened consumer spending forecast amid rising inflation expectations.
Whitney Watson of Goldman Sachs Asset Management suggested that the Fed is detecting some stagflation signs, with rising prices and slowing growth. However, Powell countered that while the economy remains solid, inflation rises have balanced out with growth slowdown forecasts, warranting two more rate cuts this year.
Nonetheless, Powell remarked that such forecasts are “extremely uncertain” due to high uncertainties surrounding the economy and the unpredictable effects of Trump’s policies.
The New York stock market soared in response to Powell’s remarks at the press conference. Stocks surged due to expectations for two additional rate cuts this year, despite Powell’s suggestion that high interest rates could persist longer than expected. Technology stocks on the Nasdaq, which are sensitive to interest rates affecting future earnings’ present value, rose by 1.8% to 17,825. The broader S&P 500 increased by 1.4% to 5,692, and the Dow Jones Industrial Average, composed of 30 major blue-chip stocks, rose by 1.2% to 42,069.