While this should help to keep a lid on inflation, Fed Chair Jerome Powell remains concerned that Trump's tariffs soon will boost inflation. He said so today in his prepared congressional testimony on monetary policy:
"The effects of tariffs will depend, among other things, on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity. The effects on inflation could be short lived—reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent. Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass through fully into prices, and, ultimately, on keeping longer-term inflation expectations well anchored."
So Powell is in no rush to lower the federal funds rate (FFR). He clearly disagrees with the dovish stances of two key FOMC voters, Governors Michelle Bowman and Christopher Waller. Both recently said they would favor a FFR reduction in July if the inflation data remain in check. Both are less concerned about rising inflation than a weakening labor market, whereas Powell is less concerned about the latter.
Today's release of the Consumer Confidence Index survey for June showed a drop in the percentage of respondents agreeing that "jobs [are] plentiful" to 29.2% (chart). Most of this decline boosted the response rate of "jobs [are] available" to 52.7%, while "jobs [are] hard to get" remained relatively low at 18.1%. Those readings are still consistent with a normal labor market rather than one that requires some help from the Fed, in our opinion.
