What do we expect from Powell’s speech today at 5:00 PM?

Federal Reserve Chairman Jerome Powell faces tough questions – particularly regarding the decision to keep interest rates unchanged at the FOMC meeting in January – during his semiannual testimony before Congress at Humphrey-Hawkins. A notable aspect of the Fed’s Monetary Policy Report submitted to lawmakers is how rarely the word “tariffs” appears – despite the fact that this topic has been a major source of market volatility amid the activity surrounding President Donald Trump’s trade measures.

Powell is likely to avoid making predictions about how tariffs will affect inflation or how the Fed will respond. Instead, we expect him to stick to the message that the economy is stable and that the Federal Reserve can afford to keep interest rates unchanged.

The second day of the hearing will take place immediately after the publication of the January Consumer Price Index (CPI), and we may receive Powell’s initial official stance. We expect core CPI inflation for January to be moderate, while the overall index will show a concerning increase in food prices.

Before the hearing, the Fed submitted its semiannual Monetary Policy Report (MPR) to the Senate Banking, Housing and Urban Affairs Committee and the House Financial Services Committee.
It is assumed that Powell will adhere to the messages in the MPR. Explaining why the FOMC cut rates by 100 basis points since September of last year, the report focuses entirely on inflation as the main factor: “The FOMC’s decision to begin reducing the degree of monetary restraint reflects greater confidence that inflation will move sustainably toward 2 percent and the judgment that it is appropriate to adjust the policy stance.”
The omission of labor market conditions is interesting, as Powell had earlier mentioned that concerns about excessive weakness in hiring were the main reason for the 50 basis point rate cut in September 2024.
Notably, the 83-page MPR contains only two mentions of “tariffs” – neither in the context of domestic inflation – and there is no mention of “trade policy” or “Trump.”
This may be taken as a signal that Powell will avoid stating that tariffs are driving inflation or offering a specific assessment of the president’s fiscal policies. Instead, he is likely to repeat his usual response – that the Fed does not “speculate” on potential policies, and the final effect of tariffs will depend on which goods from which countries are subject to taxes and how those countries will respond.4o mini