Powell Signals Inflation is More Important Than Labor

In his recent Economic Club of Chicago speech, Fed Chair Jerome Powell highlighted a potential conflict between the Federal Reserve’s dual mandates. He made it clear that while both price stability and maximum employment matter, they might pull policy in opposite directions – especially as new tariffs create uncertainty for both inflation and growth.

When inflation rises, the Fed typically maintains or increases rates to control spending. Conversely, economic slowdowns usually prompt rate cuts to stimulate activity.
Remember that when the Fed adjusts rates, they’re changing the Fed Funds Rate – the overnight lending rate between banks. This benchmark influences all other interest rates, though it doesn’t directly determine mortgage or long-term rates.

What’s the bottom line?
Powell emphasized that “without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans.” He indicated the Fed will “wait for greater clarity before considering any adjustments to our policy stance.” Watch for the Fed to closely analyze upcoming inflation and employment reports as they make their monetary policy decisions.