"We stay in our lane at the Fed," is this week's refrain from Federal Reserve Chair Jerome Powell who, in questions over the Trump administration's tariff policies, said that "it's not up to us to criticize their activities." Yet Powell did touch on trade, repeating yesterday's generalized statements on protectionism, that it hurts productivity and is "bad for the economy", both national and global. And he also repeated that the Fed is hearing a "rising chorus" of tariff concerns among its business contacts and he noted that retaliatory tariffs are just beginning. He added, "You have to be careful to walk on this path, because it may not be so easy to get off it." Powell said it's too early to say where the tariff moves will lead, further noting that a period of initial tariff actions could prove a plus if in the long run tariffs and trade barriers are lowered. He also noted that it is appropriate to address trading problems with China.
Asked about risks to financial stability, Powell pointed squarely to the risk of a successful cyber attack. He noted that the Fed is helping banks to prepare against such an attack. Traditional risks to stability are in the normal range though he said asset prices, including bonds, stocks and commercial real estate, are generally high. On inflation, he said risks are roughly balanced around the Fed's symmetric target though he did note that Fed policy makers are still a little more worried about inflation being on the low side. On wages, Powell repeated they are moving up in aggregate but still somewhat slowly. He attributes this lack of growth to lack of business investment following the financial crisis 10 years ago, but he noted that investment has been picking since 2017 though he said it will take "some time" to show up in productivity. Asked whether the Fed is considering an early end to balance sheet unwinding, Powell said no though he did note that the unwinding is an ongoing learning process for the Fed and that the final target size for the balance sheet is still uncertain.