Dive Brief:

• Federal Reserve Chair Jerome Powell on Friday said that the central bank is pausing changes to the benchmark interest rate while gauging the impact from tariff hikes and other sweeping policy shifts by the Trump administration.
• “Uncertainty around the changes and their likely effects remains high,” Powell said in a speech, referring to President Donald Trump’s implementation of “significant” revisions to regulation and policies on immigration, government spending and trade.
• “As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves,” he said. “We are not in a hurry, and we are well positioned to wait for greater clarity,” Powell said, adding “policy is not on a preset course.”

Dive Insight:

Powell said that while the Fed has made progress easing price pressures, inflation will likely continue to follow a “bumpy” path down to the central bank’s 2% target.

Both market and survey data have recently shown that expectations for short-term inflation have risen, Powell said, adding that “both consumers and businesses are mentioning tariffs as a driving factor.”

Confidence in the economic outlook among business and consumers has declined because of worries about import duties and the prospect of higher prices, according to recent surveys.

“Numerous business leaders expressed heightened concern over inflation, largely stemming from expected pass through of increased tariffs,” according to a Dallas Fed report quoted in the central bank’s “beige book” summary on the economy released Wednesday.

The proportion of Standard & Poor’s 500 index companies that mentioned tariffs during earnings conference calls from Dec. 15 through March 6 hit the highest level in 10 years, FactSet said Friday.

Among the 259 companies in the index that flagged tariffs, 55 were industrial companies, FactSet said, noting that 82% of companies in the materials sector mentioned tariffs.

“The four sectors (materials, industrials, consumer discretionary and consumer staples) that have the highest percentages of companies citing ‘tariff’ or ‘tariffs’ on earnings calls for Q4 are also the four sectors that have seen the largest cuts to EPS estimates for Q1 to date,” FactSet Senior Earnings Analyst John Butters said in a statement. 

Amid the hazy outlook for inflation and federal policy, employment remains steady, Powell said.

“Many indicators show that the labor market is solid and broadly in balance,” he said, citing government data released Friday showing that employers hired 151,000 workers in February and have expanded payrolls on average by 191,000 workers each month since September.

Meanwhile, “wages are growing faster than inflation and at a more sustainable pace than earlier in the pandemic recovery,” Powell said.

Average hourly earnings increased 0.3% last month for a 4% annual gain, the Bureau of Labor Statistics said.

Unemployment rose 0.1 percentage point to 4.1%, with federal employment falling in February by 10,000 workers, the BLS said. The data do not reflect the full extent of Trump administration cuts to federal jobs at the end of the month.