Fiction and fact

And who says Federal Reserve Chair Jerome Powell doesn’t have a sense of humor? In his Economic Club of Chicago speech last week, he quoted the great Chicagoan Ferris Bueller, who noted that “life moves pretty fast” in "Ferris Bueller's Day Off."

That was the backdrop to Powell’s speech. He noted that the Fed is always focused on its dual mandate, to seek maximum employment and stable prices. Despite heightened uncertainty and potential downside risks, the US economy is still in a solid position. But the administration is implementing substantial policy changes, in trade, immigration, fiscal policy and regulation. These shifts are creating a high level of uncertainty, the effect of which will take time to unfold, but likely will lead to higher inflation and slower growth. The Fed may then find that its dual-mandate goals are in tension, which would lead it to consider how far the economy is from each goal before acting.

Economic data released last week were mixed, as one-year forward inflation expectations measured by the New York Fed increased from 3.13% to 3.58%, above expectations, but March retail sales and weekly jobless claims were better than expected. Since tariffs were announced on April 2, much of the data has yet to capture their impact. The market is now focused on first quarter corporate earnings and management guidance.