UBS Economics-US Economic Perspectives _Chair Powell uncertain but we can...-116032903

ab18 June 2025Global ResearchUS Economic PerspectivesChair Powell: uncertain but we can waitThe economy is solid, outlook uncertain, so we waitChair Powell reiterated the outlook is highly uncertain, but with the economy solid and the labor market doing well in his view, the FOMC has the luxury of waiting. "Because the economy is still solid, we can take the time to actually see what's going to happen," said Chair Powell. He said policy is well-positioned to respond to risks that may be realized. "The current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments."As we wrote earlier and repeat below, the Summary of Economic Projections (SEP) seemed to tolerate inflation more than we expected. In December, the FOMC was projecting 2.5% core inflation this year, falling to 2.2% in 2026 and reaching the 2.0% target in 2027. Now, with 0.6 pp more core inflation this year (3.1%), the FOMC median has the same number of rate cuts. They took one 25 bp rate cut out of the median assessment of appropriate policy, but no longer get inflation back 2.0% … so almost as many rate cuts but willing to leave core and headline inflation above the 2.0% target for their forecast horizon and going on 7 years. Of course they do cap the increase in the unemployment rate at 4.5% in the median projection. In the press conference, Chair Powell did not push back against rate cuts this year, seemingly comfortable with the Summary of Economic Projections' medians. He said any of the rate cut paths shown could be possible, he said ("you can make a case for any of the rate paths that you see in the SEP.") Overall, however, he highlighted the uncertainty. The forecasts would depend heavily on tariff policy and its impact. He downplayed that fiscal policy would have much impact. He said more than once that participants did not hold their rate paths with a lot of conviction. Staying on hold this week, and in the future sounds like it depends on the conditions in hand. "The economy is in solid shape. The labor market is not crying out for a rate cut," he said. "So we think our current stance of monetary policy is in a good place." That could also be linked to some division between the clump of high dots in the SEP and the clump of lower dots. The higher clump of dots may have a rosier outlook, allowing the FOMC the luxury of staying on hold for even longer. Most participants, however, see two or three 25 bp rate cuts this year as appropriate. A sizeable majority see the funds rate down to 3.625%, or lower next year, and 3.375% or lower in 2027. Despite the nuance in the projections, and minor observations like no one saw a hike in the future, the basic message of uncertainty and being able to stay on hold to see how the risks develop remained. "Our obligation is to keep longer-term inflation expectations well anchored and to prevent a one-time increase in the price level from becoming an ongoing inflation problem. As we