Federal Reserve Chair Jerome Powell opened his press conference by saying the economy is strong, but consumer spending is moderating and uncertainty is "unusually elevated" as the new White House administration implements policy changes.

U.S. stocks extended solid gains in Wednesday afternoon trade, after Federal Reserve chair Jerome Powell suggested that inflation caused by tariffs would only be "transitory."

Nasdaq continues to rally 2.11%; S&P rose 1.6%. Big techs jumped, Tesla up 6.4%; Nvidia up 3.8%; Alphabet up 3%, Apple up 1.6%.

"It remains to be seen how these developments might affect future spending and investment," Powell said. Uncertainty around policy changes and their effect on the economy is high, according to the Fed chair, who says "we do not need to be in a hurry to adjust our policy stance."

Powell says that the move to slow QT was a “technical” decision.

Powell says there have been signs of “tightness” in money markets.

Powell has made it clear that the policies being wheeled out by the new Trump administration are going to be felt by the economy but he is careful to avoid being overly directional on that impact.

That may be an attempt by him to fend off expected questions on how all of this will play out by saying he stays glued to the monthly data.

Powell is reviewing economic data now. He says recent data points to a moderation in consumer spending and heightened uncertainty among households.

While Powell notes the moderation in consumer spending, he adds that’s from the rapid growth seen in recent years.

Conditions remain solid in the labor market, he says.

Powell describes the new 1.7% GDP forecast as “somewhat lower” than before.

Wages are growing faster than inflation and at a “more sustainable pace,” Powell says. He reiterates that the labor market isn’t a major source of inflationary pressures.

Powell notes that some measures of inflation expectations have moved up, but that beyond the next year or so “most” measures of longer-term expectations remain consistent with the Fed’s 2% target.
Powell gets asked about the revision to inflation forecasts and how much of it is due to tariffs. He says it’s hard to parse how much of inflation is driven by tariffs but that they’re going to try to figure this out:

“Clearly some of it, a good part of it is coming from tariffs.”

It’s too soon to say whether they can look through any initial tariff-related inflation hit, Powell says.

Powell notes that the Fed can look through one-time shocks from something like tariffs if long-term inflation expectations are well anchored.

Powell also goes over well-worn messages about how the Fed could cut rates if the labor market weakened unexpectedly or if inflation fell unexpectedly.

If inflation doesn’t continue to move sustainably toward 2% “we can maintain policy restraint for longer.”

Well, there you go. Powell utter the T-word:

“As I’ve mentioned, it can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away quickly without action by by us, if it’s transitory."

Powell says we’re in a “low firing, low hiring” environment and that’s been “in balance” for the last six months or so. But the Fed is watching this carefully because, should layoffs increase meaningfully, it would translate “fairly quickly” to unemployment, due to the low hiring rate.

Despite the big GDP downgrade by the Fed, Powell sounds quite upbeat on the outlook for employment.

The two very strong goods-price inflation readings over the past two months were unexpected, Powell says. It seems hard to tie it to specific tariffs, but “it must have something to do” with them, he says.