Federal Reserve Chair Jerome Powell said on Wednesday, May 7, that the central bank stands ready to balance its twin goals of price stability and full employment if the US economy shows clear signs of stagflation.Acknowledging that such a scenario would place the Fed’s dual mandate in conflict, Powell explained the framework the central bank would use to respond: “We may find ourselves in the challenging scenario in which our dual mandate goals are in tension. If that were to occur, we would consider how far the economy is from each goal and the potentially different time horizons over which those respective gaps would be anticipated to close.”
While Powell maintained that the US economy remains on stable footing, recent projections have revived concerns about stagflation—a mix of stubborn inflation and weakening growth.
Also Read: US Fed holds rates steady despite Trump pressureIn the past, such trade-offs forced the Fed into difficult decisions, most notably in the early 1980s.Asked which part of the Fed’s mandate—employment or inflation—it would prioritise if trade-offs become unavoidable, Powell said, “It’s too early to know that.”For now, he signalled that policy is unlikely to shift. “We think our policy rate is in a good place to stay as we await further clarity on tariffs and ultimately implications for the country,” Powell added.The Federal Reserve held its benchmark interest rate steady at 4.3% for the third consecutive meeting, following three straight cuts late last year.
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