Powell: Interest rate hikes are not a fundamental assumption for anyone's next actions, and tariff inflation is expected to dissipate by mid-year (full text attached)

Key points from Powell's press conference:Monetary Policy: Powell stated that interest rate hikes are not a fundamental assumption for anyone's next actions.Inflation: Inflation risks have somewhat diminished. By December 2025, the core PCE inflation rate has reached 3% for 12 months. High inflation partly reflects the impact of tariffs pushing up commodity prices. Inflation expectations show confidence in the 2% target, and long-term inflation expectations remain aligned with the target. It is still too early to declare victory in the fight against inflation.3. Employment: Employment risks have somewhat diminished. The unemployment rate shows signs of stabilization. After a gradual softening, the labor market may stabilize. Hiring, job vacancies, and wage growth have shown little change.4. Tariffs: Most of the impact of tariffs has already been transmitted to the economy, and tariff-induced inflation is expected to dissipate by mid-2026. If we see the peak impact of tariffs, it indicates that we can ease policies.5. Weakening Dollar: No comment. There is no data indicating that investors are hedging against dollar risks. Do not overinterpret the macro information released by precious metals.Fiscal: The U.S. debt trajectory is undoubtedly unsustainable.AI and Technology: In the short term, we may see artificial intelligence (AI) eliminating jobs/AI leading to job displacement.Powell's Tenure and Federal Reserve Independence: There are no plans regarding his tenure after the chairmanship term ends in May. He declined to comment on key Republican Thom Tillis's vow to obstruct the nomination of the Federal Reserve chair; he emphasized that the legislative arrangement of Federal Reserve independence has allowed it to serve the U.S. well; he does not believe the Federal Reserve will lose its independence, and they are all strongly committed to maintaining it; the lawsuit faced by Federal Reserve Governor Lisa Cook may be the most significant case in the Federal Reserve's history; he will recommend that the next Federal Reserve chair stay away from politics.On Wednesday, the Federal Reserve announced the interest rate decision made by the Federal Open Market Committee (FOMC), and the Federal Reserve held steady as the market expected. In the post-meeting press conference, Federal Reserve Chair Powell stated that interest rate hikes are not a fundamental assumption for anyone's next actions. Additionally, he did not provide substantial responses to the politically sensitive issues.In his opening remarks, Powell stated that the U.S. economy has a solid foundation as it enters 2026. Although recent job growth remains low, the unemployment rate has shown some signs of stability. Meanwhile, inflation remains at relatively high levels.In the previous three consecutive meetings, the Federal Reserve has cumulatively lowered the policy interest rate by 75 basis points. Powell stated,Current indicators show that economic activity continues to expand at a robust pace. Consumer spending demonstrates resilience, and business fixed investment continues to growIn contrast, activity in the housing sector remains weak. He stated that the federal government's temporary shutdown may have caused some drag on economic activity in the last quarter, but with the government back in operation, these effects are expected to reverse in the current quarter and support growth.Regarding the labor market, Powell believes that after a period of gradual cooling, employment conditions may be stabilizing. The unemployment rate in December was 4.4%, showing little change in recent months. Job growth remains relatively low.In recent months, non-farm payrolls have averaged an increase of only about 22,000 per month, including government sector employment; the scale of new jobs in the private sector is also limited. Powell stated,This partly reflects a slowdown in labor supply growth, due to factors such as reduced immigration and a decline in labor force participation. At the same time, labor demand has also clearly cooled.Other indicators—including job vacancies, layoffs, hiring, and nominal wage growth—have shown little significant change in recent months.Regarding inflation, Powell said that current inflation levels remain above the Federal Reserve's long-term target of 2%. Estimates based on the Consumer Price Index show that the overall PCE price index rose by 2.9% over the 12 months ending in December; the core PCE price index, excluding food and energy, rose by 4.3%. He stated,These elevated readings largely reflect rising inflation in the goods sector, primarily driven by tariff impacts.In contrast, inflation in the services sector seems to be continuing to cool. He noted that both market indicators and survey-based indicators show that inflation expectations have retreated from last year's peak, and long-term inflation expectations remain aligned with our 2% target.In a subsequent press conference, Powell declined to make substantive comments on the politically sensitive issues but strongly emphasized the need to maintain the independence of the Federal Reserve. However, he indicated that the lawsuit faced by Federal Reserve Governor Lisa Cook could be one of the most significant cases in the history of the Federal Reserve. He also suggested that the next Federal Reserve Chair should stay away from elected politics.Powell also mentioned that we are currently at the high end of the neutral interest rate range, and data does not indicate that policy is highly restrictive. The risks to employment and inflation have somewhat diminished, and raising interest rates is not a fundamental assumption for anyone's next steps.Policy may be neutral or somewhat restrictive.Many people today support keeping the policy rate unchanged.Additionally, Powell believes that most of the impact of tariffs has already been transmitted to the economy, and tariff-induced inflation is expected to dissipate by mid-2026.If we see the peak of tariff impacts, it indicates that we can ease policy.Regarding artificial intelligence (AI), Powell stated that in the short term, we may see AI eliminating jobs/AI leading to job losses, but the long-term outlook remains uncertain.Here is the transcript of the Q&A session from the press conference:1. You attended the Supreme Court hearing on the Lisa Cook case last week, and Treasury Secretary Scott Bessent criticized it as a political act. Can you explain why you attended and how you respond to the Treasury Secretary's criticism?Powell: Let me say one thing first, I will not respond to comments from other officials, no matter who they are. I don't think it's appropriate to do so. I can tell you why I am here.I believe this case may be the most important legal case in the 113-year history of the Federal Reserve. After careful consideration, I find it difficult to explain why I wouldn't attend.Additionally, Paul Volcker also attended a related Supreme Court case around 1985, so there is precedent for this. Therefore, I believe it is appropriate, and that is why I came.2. Regarding the job market, you mentioned last month that the household survey data may be distorted, and also mentioned that employment numbers may be overestimated, which means the pace of hiring may still be negative. So, do you think the decline in the unemployment rate is reliable? Also, I would like to ask, what is your basis for judging that the situation has stabilized?Powell: Here, there are actually two questions. First, we are gradually digesting the distortions caused by the shutdown. No matter how significant the impact in November was, it has diminished a lot by December, and we are moving towards a stage where these impacts are no longer materially significant. They still exist, but just as some sporadic small adjustments.As for why we modified the wording of the statement—I will find it and mention it—the previous wording was that the committee believed the downside risks to employment had increased in recent months. Later, we saw newly released data showing some signs of stabilization. I won't overstate this, but we did see some signs of stability. At the same time, there are still some signals of continued cooling, so we believe the original wording no longer accurately reflects the data situation.Additionally, since the last meeting, the assessment of the economic activity outlook has clearly improved, and this will impact labor demand and employment over time.For these two reasons, we believe that segment of wording should be removed from the statement.3.** You have generally avoided direct involvement in political controversies, yet your statement on January 11 was seen as an exception. What made this situation different? Are you concerned that this will further pull the Federal Reserve into political debates? Can you clarify whether the Federal Reserve has responded to the related subpoenas?Powell: Today, I will only ask you to refer to the statement I made on January 11. I will not expand on that or repeat the content. I will not continue to discuss this issue—this press conference is primarily focused on the economy and the actions we are taking today.There are some related matters, but I will not discuss the topic you mentioned. I have no information to provide today regarding the related subpoenas.4.** Have you made a decision about whether you will continue to serve as a Federal Reserve Governor? If a decision has been made, can you tell us the result? If not, when can we expect a decision? In the current situation, why would you want to leave?Powell: No. And I will say again, I have no information to provide on this issue today. The same goes for this questionI still don't want to discuss this issue. There are appropriate times and occasions for such questions, but I won't talk about it today. Thank you.5. In recent days, the US dollar has experienced considerable volatility. What do you think are the factors driving the dollar's weakness? Additionally, are you concerned about the magnitude of the fluctuations we've seen this week? What is your view on the reasons behind these market fluctuations? Is it related to asset diversification by asset management institutions?Powell: As you know, we do not comment on dollar issues. In fact, the government, especially the Treasury, is responsible for the regulation of currency and exchange rates, which is not our responsibility. This is not part of our role. So, I have nothing to respond to on this question.We do not discuss the dollar, nor the factors driving its fluctuations. It is not appropriate for us to do so. The Treasury is truly responsible for these issues, and it is within their scope of duties; we will not intervene. Our responsibility lies in monetary policy and other related matters, but we will not comment on the dollar. Sorry.6. This meeting did not release the SEP, but given the slightly stronger tone regarding economic growth and the labor market in the statement, can we understand that the timeline for further rate cuts has been delayed compared to market expectations in December? What about specific timing or the pace of further easing?Powell: First of all, if you look at the data released since the last meeting, you can see that the overall assessment of economic growth has become clearer. Whether it is the Beige Book on economic conditions or other data, they all indicate that the growth this year has started quite robustly.Inflation performance is generally in line with expectations. As I mentioned earlier, some labor market data also show signs of stability. So if your question is whether the overall outlook is stronger, then the answer is yes, overall, the outlook has indeed strengthened somewhat. As for whether I directly answered your question, I'm not quite sure.We have not made any decisions regarding specific easing timelines. What we said after this meeting is that after the recent three rate cuts, we are in a favorable position to address the risks facing our dual mandate. Moving forward, we will continue to make decisions at each meeting based on the latest data and the implications of that data for the outlook and risk balance.We have not made any decisions regarding future meetings. But for now, the economy is still growing at a solid pace, the unemployment rate remains generally stable, and inflation is still at a relatively high level. Therefore, we will continue to closely monitor our target variables and let the data guide us.7. You previously seemed to mention that the current policy rate is at the higher end of the neutral rate range. However, looking at the long-term rate forecasts in the SEP, 16 out of 19 officials actually predict long-term rates below the current level. Is the Federal Reserve still working to lower rates toward the midpoint of the neutral range? If so, what conditions would need to be met to get there?Powell: I counted myself, and the result is that out of 19 people, 4 have forecasts at this level or higher. Maybe I miscounted by one, but I remember it being 4If you look at the survey of primary dealers, 10 out of 58 people are at this level or above. So you are right, it is indeed currently at the higher end of the range. We have always said that this level still falls within a range of reasonable estimates. This is the high end of the range, but for some, this is the neutral level.I think that many of my colleagues and I feel that, based on the latest data, it is difficult to say that the current policy stance is significantly tight. It may be roughly neutral or slightly tight. This depends to some extent on how you look at it, and of course, no one can know this very precisely.8. Some officials have also mentioned that the Federal Reserve is still in a mode of gradually lowering interest rates over time. Are you still in this mode now, or is this a position that can be maintained?Powell: Yes, that's right. If you look at the December SEP, most people do indeed believe that there will be further normalization adjustments in the future. But at the same time, we have completed a considerable portion of the normalization process. Since starting to cut rates in September 2024, we have cumulatively lowered by 175 basis points, and then another 57 basis points.That is to say, the policy rate has been lowered by about 3 percentage points in total, and the federal funds rate is currently operating at just below 3.65%. So, we have come quite a long way. We believe that at this position, we can observe how the economy evolves well.We will continue to look at the data. We have not made decisions regarding future meetings, but we do believe that after completing these three rate cuts, the current policy stance allows us to let the data "speak" to us.9. To what extent has the committee discussed the possibility of rate cuts? Is there a broad consensus on whether to cut rates and what conditions need to be met?Powell: Today, there is broad support within the committee for maintaining interest rates unchanged. I would say this support also includes non-voting members, so that is the overall situation. Of course, there are indeed some who advocate for rate cuts and therefore voted against it, but overall, the committee is quite unanimous in the decision to hold steady today.We are not trying to provide a clear "test condition" to indicate when the next rate cut will be, or whether it will happen at the next meeting. What we want to express is that we are currently in a good position to make decisions at successive meetings based on the latest published data, the evolving outlook, and relevant factors.Currently, there is still some tension between employment and inflation, but it is not as strong as before. I believe that the upside risks to inflation and the downside risks to employment may have weakened compared to before.Therefore, we will continue to pay attention to these factors. The key is how to weigh the risks faced by these two goals of the dual mandate and the magnitude of these risks, and to try to assess them. There are differing views within the committee on this, and we will gradually find a way forward as the data changes10. Has the impact of tariffs been transmitted to the entire economy at the price level?Powell: To a large extent, it has been transmitted. Overall, there are many different estimates on this, and the uncertainty is quite high, but a significant portion of the increase in commodity prices comes from tariffs.This is actually good news because if the price increases were not due to tariffs, it might mean they are demand-driven, which would be a more difficult problem to solve. We do believe that the impact of tariffs is likely to be gradually transmitted and is a one-time price adjustment.So, most of the current price "overshoot" is related to tariffs. If you exclude the tariff factor, you would see—that is, when not considering the impact of tariffs on commodity prices, the core part of inflation is just slightly above 2%.Another piece of good news is that if you look at services instead of goods, you will find that in various categories of the service industry, the persistent decline in inflation is still ongoing. This is a healthy development, and that is the current situation.Our expectation is that the impact of tariffs on commodity prices will gradually manifest and peak, then begin to decline, provided that no new significant tariff increases occur. This is also what we expect to see within this year.If this does happen, it would be a signal that we can ease policy. At the same time, if we see signs that the labor market is not stabilizing, but rather that downside risks are re-emerging, or if the overall data worsens, we must also consider these factors. Our mission is dual, requiring trade-offs on both fronts.11. What would happen if President Trump chooses to appoint a new Federal Reserve Chair before May? What would the transition process look like?Powell: I have no information to provide on this matter. It would depend on Congressional actions and other things I cannot speculate on.12. Given the changes in the statement and what you just mentioned, can it now be considered that the risks on both sides of your dual mandate are roughly balanced? Is the next action necessarily a rate cut?Powell: I would say that the upside risks to inflation and the downside risks to employment have both diminished, but they still exist. So, there remains some tension between these two mandates.Is it fully balanced? It's hard to say, very hard to say. To emphasize again, we believe the current policy stance is in a good position.I have already talked about some situations that might prompt us to adjust policy, and we will have to see how the data guides us next.13. You mentioned earlier that you believe inflation expectations are aligned with the Federal Reserve's mandate, but I recall that in the past few weeks, the breakeven inflation rates for two-year and ten-year periods have shown quite significant fluctuations. Is there concern about this?Powell: I have recently reviewed various survey data and market indicators, and short-term inflation expectations have clearly fallen. They were in a good position at the beginning of last year, spiked around "Liberation Day," but have completely receded in recent months, which is very reassuring.As for long-term inflation expectations, they have remained at a level highly consistent with the long-term 2% inflation target. Therefore, overall inflation expectations are stable and reflect the market's confidence in inflation returning to 2%.14. You previously stated that the reason for choosing to cut interest rates was that the risks facing the labor market outweighed those related to inflation. Does this judgment still hold?Powell: You are correct. At that time, we saw the labor market weakening, so we took action, which I believe was the right approach. We always need to respond to the economy deviating from our targets.Currently, the risks associated with both variables have decreased. I believe the upside risk of inflation has diminished somewhat, and the downside risk to employment has also decreased.I want to emphasize that I am not judging which side's risk is greater; I am simply saying that the risks on both sides have overall weakened.15. The Bank for International Settlements (BIS) published a paper last summer concluding that due to policy uncertainty, global investors are hedging their dollar exposure in unprecedented ways. Do you agree with the BIS's assessment?Powell: We have not seen much to support that claim. Regarding this entire set of statements, we have seen almost no clear signs, nor do we have much data indicating that this phenomenon is indeed occurring on a large scale.16. Can you elaborate on what conditions in the labor market would lead you to believe it is time to restore accommodative policies? Do you need to see further deterioration in the labor market, or is it sufficient that inflation continues to soften?Powell: We will always pay attention to both aspects simultaneously. There may be various combinations that could prompt us to take action; in fact, there can be many combinations.A weakening labor market is, in itself, a reason to support easing policies. However, if at the same time, inflation conditions are deteriorating, that would create a rather tricky situation. Therefore, we will look at both aspects simultaneously.It is clear that a weaker labor market would prompt us to cut interest rates; whereas if the labor market is performing strongly, it indicates that the current interest rate level is appropriate. Of course, we also need to make similar judgments regarding inflation.17. If inflation rises again, and there are no further signs of weakness in the labor market, is there a possibility of raising interest rates instead of remaining on hold? Do you see any need to raise rates?Powell: Currently, no one's baseline scenario assumes that the next step will be to raise rates. But in principle, we will ultimately do what we believe is right. Just for now, that is not the current expectation of the committee18. You have previously expressed concerns about the fiscal path of the United States. Recently, we have seen significant turmoil in the Japanese government bond market, partly related to its fiscal situation and long-term economic outlook. Are you worried that the U.S. might also find itself in a similar situation as Japan at some point due to fiscal or demographic reasons?Powell: From a time perspective, U.S. interest rates have not changed significantly, at least for quite some time. And these changes are not due to anything happening in Japan, so this is more of a long-term issue.There is no dispute about the problem of the U.S. federal budget deficit; the current fiscal path is unsustainable, and this path is not viable. The sooner we address it, the better the situation will be.Right now, even as we approach full employment, we are still running a very large fiscal deficit, and the fiscal situation does need to be addressed. But the reality is that it has not really been resolved, so this is an important issue. I am not directly linking it to any short-term market events, but in the long run, this is something we ultimately have to face.If the issue is pushed to the "final stage," it would indeed lead to some difficult situations. But that is neither where we are now, nor is Japan at that stage, at least not at this moment.19. The overall long-term interest rates have not significantly decreased; does this weaken the effectiveness of your rate cuts?Powell: I wouldn't see it that way. In principle, higher long-term rates mean that financial conditions are not as accommodative, but remember, there are many, many factors that influence long-term rates, not just changes in short-term rates.Our policy adjustments may certainly have some impact on long-term rates, but what drives the fluctuations in the 10-year Treasury yield more is the market's assessment of the fiscal path, fiscal policy, and related risks.You can look back at history and find that there have been periods when we actively adjusted policy rates within a year, but by the end of the year, the 10-year Treasury yield had almost returned to the level it was at the beginning of the year. Therefore, there is not a tight one-to-one correspondence between the 10-year rate and the overnight policy rate.20. Republican Senator Thom Tillis, a member of the Senate Banking Committee, has stated that he will block any Federal Reserve nominees, including the chair, until your investigation is concluded. Do you support the senator's actions? What communication have you had with this senator?Powell: I have no comments to respond to on this issue.21. If the Federal Reserve loses its ability to operate independently of political influence, what impact would that have on American households? Are you confident that, at this stage, the Federal Reserve can maintain that independence?Powell: The significance of the Federal Reserve's independence is not to protect certain vested interests. Its essence lies in being a proven institutional arrangement that allows monetary policy to be made without direct control by elected political powersThe reason is that monetary policy can be utilized during election cycles to influence the economy in a politically "advantageous" way. I am not specifically referring to the United States; this is true in any developed economy and democratic country of any size.Therefore, this is a good practice. Almost all countries that are institutionally similar to the United States operate this way. I believe that once this independence is lost, it will be very difficult to restore the credibility of this institution. If the public no longer believes that we are making decisions solely based on the judgment of "what is most beneficial for everyone, for the entire public," rather than favoring one group or another, then once that trust is lost, it will be very hard to regain.And we have not lost that trust. I do not believe we will lose it, and I certainly hope we do not. But this is extremely important. It is precisely because of this independence that central banks, overall, although not perfect, can serve the public relatively well.Yes. I have a very strong commitment to this, and my colleagues do as well.22. Regarding the issue you mentioned about the labor market "tending to stabilize," to what extent do you think the weakening we have seen over the past six months or a year has been influenced by data distortions related to immigration, and that influence has now dissipated? To what extent does it truly reflect the labor market itself gradually stabilizing and becoming solid?Powell: As you said, part of the reason is that economic growth and labor supply have essentially stagnated. In the past few years, both had been growing at a fairly rapid pace, largely driven by immigration. Then, due to a sudden and significant decrease in immigration, growth also sharply slowed.In this situation, there could have been various different outcomes. The fact is that labor supply has decreased significantly, while labor demand has also decreased by almost a similar magnitude, perhaps even slightly more, which is the reason for the rise in unemployment. I do not know if this is a coincidence, but that is what actually happened in this part.If you look at some other indicators, for example, the latest job vacancy indicator released by the Conference Board—I am not sure if it was published yesterday or today—the survey shows that the proportion of workers who believe "there are plenty of jobs" is at a very low level. This is just one reading, but it does signal a softening labor market.Additionally, in the U-6, which is a broader unemployment indicator, the subset of those working part-time for economic reasons has also clearly increased.There are many similar signs, and I could continue to list them. Overall, there are many details indicating that the labor market has weakened, but you are right.The slowdown in wage employment is partly due to the decline in growth on both the labor supply and demand sides. This makes the current phase of the labor market particularly difficult to interpret. Both sides have slowed significantly, resulting in almost stagnant job growth. So, is this full employment? In a sense, if supply and demand are balanced, you could say that is full employmentBut at the same time, do we really feel that this is an economy that achieves "maximum employment"? This is indeed a very challenging and quite unusual situation.23. Regarding economic growth and the strong growth prospects you see now, to what extent does this come from the fiscal stimulus you mentioned, such as tax cuts and other factors?Powell: You can already see part of the impact now. I think your judgment is correct; it is related to the financial environment and the fiscal policy in 2026.However, before the effects of fiscal policy truly manifest, consumer spending has already shown to be quite strong, and financial conditions had previously supported the economy. So essentially, the U.S. economy has once again surprised us with its resilience, and this is not the first time.Although consumer spending is not balanced across different income groups, the overall data still looks good. At the same time, we are also benefiting from the construction of data centers related to artificial intelligence, which is an important factor.Overall, economic growth seems to be on a solid foundation, and it is not just these factors at play. There has long been a phenomenon where consumers express very pessimistic sentiments in surveys, yet their actual spending behavior remains active.Therefore, for some time now, there has indeed been a clear divergence between the pessimistic survey data and relatively good consumer spending data.24. You mentioned that consumer spending is not balanced. The President claims that inflation has been defeated and the problem is solved; while the Federal Open Market Committee states that inflation is still "slightly high." You also talked about consumer confidence surveys and polls showing that most households still consider the cost of living to be the number one issue. How do you and your colleagues discuss this phenomenon within the committee: why do wealthier consumers seem to be driving economic growth, while so many households still feel it is difficult to make ends meet after five years of rising prices? What are your discussions like?Powell: I want to make a few points. First, this situation does have its real basis. We know that high-income households often own real estate and hold stocks and securities, and the value of these assets has been rising. The increase in wealth does indeed support consumer spending over time, which is a clear part of this story.At the same time, we also know that for quite a long time—at least over a year—we have been hearing the same feedback from retailers serving low-income consumers. Whether it is food retailers or large chain supermarkets, they are saying the same thing: consumers are being frugal. They are choosing cheaper brands, buying less, and their consumption habits are changing.So, we do see this situation; it is a reality. They are still consuming, but the experience is different.More broadly, on the issue of affordability, we have established a large communication network through the Federal Reserve Banks and the Board, which communicates with businesses and households of all sizes. Therefore, we often hear feedback about the cost of living and affordabilityWe take these voices very seriously and keep them in mind.One of our responsibilities is to achieve price stability. Therefore, the most important thing we can do for those feeling the pressure of living costs is to control inflation, and frankly, to complete the task of bringing inflation back down to 2%.25. You mentioned that the construction related to artificial intelligence is a positive factor for this year's economic growth. However, considering that last year was the weakest year for job growth since 2003 in a non-recession year, are you concerned that artificial intelligence may reduce more entry-level positions and junior jobs? How does this affect your observations of the labor market?Powell: Everyone is paying attention to the deployment of artificial intelligence and trying to understand what impact it is bringing. The range of possible outcomes is very broad, and it is difficult to draw conclusions at this time.Of course, anyone who has truly used artificial intelligence would be amazed by its capabilities.Historically, every wave of technological advancement has eliminated some jobs while creating new ones; this has always been the case. Technological changes repeatedly bring disruptions, but ultimately, technology enhances productivity, and the increase in productivity is the foundation for long-term wage growth. This process may not happen immediately, but over time, productivity improvements will drive income growth.So, we always ask one question: will this time be different? We do not know. In the short term, we may see some jobs eliminated due to the capabilities of artificial intelligence, and this situation is possible. However, what the overall impact will be is still uncertain.From a macro perspective, this question is very difficult to judge. We can observe overall data; for example, we have indeed seen a recent decline in the hiring rate of college graduates, which seems to be somewhat related to artificial intelligence, but this is not the only factor, nor the primary driving force.You will also hear some large companies stating that they will not be hiring extensively for a period of time, or that their hiring scale has decreased, or even layoffs, and when explaining these decisions, they often mention artificial intelligence.Therefore, we are all continuously observing and learning. Artificial intelligence indeed has the potential to have a profound impact on the economy, the labor market, and society as a whole. We do not have direct policy tools to address these potential issues, but we have a large number of personnel focused on analyzing it, striving to understand its macroeconomic implications—this is precisely our responsibility.26. Regarding the issue of inflation, you just mentioned that the market generally expects the impact of tariffs to be a one-time price increase, after which inflation will decline. So, will inflation still be on a cooling track in the second half of 2026? Additionally, can you further explain how far we are currently from the inflation target? Thank you.Powell: Regarding how far we are from the target, as I mentioned in my opening statement, the core PCE inflation for the 12 months ending in December was 3.0%, which is basically flat compared to the previous year. On the surface, this means there has been no progress.However, the underlying situation is slightly more positive. The reason is that a significant portion of the inflation exceeding the target comes from commodity prices, which we believe is related to tariffsUltimately, we believe that these impacts are more like one-time price increases rather than sustained inflationary pressures. So, this is roughly the current situation.As for the timing you asked about—frankly, no one thinks it is possible to clearly and precisely determine when this process will end. But the market and our expectation is that the inflation impact from tariffs will peak in the middle quarters of this year.Our approach is to track the impact of a tariff measure within a 6 to 9 month window after its implementation. Through this process, we can see how long it takes for tariffs to fully reflect in price levels, and the impact generally ends around that stage.In this regard, our analytical capabilities are continuously improving. Our judgment is that this process will likely occur around mid-year. We do not pursue overly high precision on specific timing, but we can observe whether the data is moving in that direction. I believe we can see that.27. I want to shift the perspective outside the U.S. to see what is happening overseas and how it affects the U.S. Last week, the Prime Minister of Canada stated that the global order has experienced a "break." I want to ask, how do you view geopolitical risks and their relationship with the U.S. economy?Powell: I cannot comment on that speech or related statements.For us, a significant part of geopolitical risks is reflected in energy, especially oil. So far, despite the turbulent situation, as you know, oil prices have actually fallen back, so we haven't seen too much direct impact.Looking further ahead, an important aspect is trade. It must be acknowledged that against the backdrop of very significant changes in trade policy, the U.S. economy has performed quite well overall and has basically weathered the storm.One reason for this is that the measures that were ultimately implemented were significantly less forceful than initially announced.Additionally, other countries did not retaliate; meanwhile, a considerable portion of the impact has not yet truly transmitted to consumers but has been absorbed by businesses that are between consumers and exporters.The current situation is roughly like this.28. The GDP grew by 4.4% in the third quarter, and under the previous belief that a government shutdown would drag down economic growth, the expectation for the fourth quarter was even close to 5%. Coupled with the so-called "tariff dividend" and upcoming tax cuts, in such an environment, how can you avoid stimulating inflation if you lower interest rates?Powell: First of all, we are not lowering interest rates today. But in principle, it depends on the growth rate of potential output, right? I am just discussing this theoretically, not saying that this is exactly what is happening now.The key is the actual growth rate and how fast potential output needs to grow. During periods of rapid productivity improvement, potential output also rises, so what really matters is whether the growth rate of potential output is comparable to actual output. This will become very important over timeAdditionally, the numbers you mentioned are GDP data for a single quarter, and quarterly GDP can be quite volatile; it's necessary to look at data over 12 months. Last year's first quarter GDP was negative, so from an annual perspective, the situation is not as strong as those quarterly figures might suggest. The annual growth rate is closer to just over 2%.30. How do you explain the divergence between the currently strong economic growth and the relatively weak job market? Is productivity filling this gap? And is the increase in productivity primarily driven by artificial intelligence at this stage?Powell: You're right; there is indeed such a divergence: economic growth appears quite robust, but the labor market seems to be weakening. This situation can be explained by rising productivity.However, I also want to say that we are seeing some signs that the unemployment rate is stabilizing. Therefore, we may be witnessing a certain degree of alleviation of the contradiction between the two.Moreover, as you may know, when GDP data and labor market data "diverge," labor market data tends to be more reliable in the end. The collection and interpretation of GDP data are inherently very challenging.Nevertheless, I think we may be seeing some easing of this tension, but it is still too early to draw any confident conclusions.31. After today, you have only two meetings left in your term as Chairman of the Federal Reserve. You have experienced a lot during your tenure and have served under several presidents. I want to ask, what advice would you give to your future successor?Powell: I would say a few things.The first point is to stay away from elected politics. Do not get involved in elected politics, do not be pulled in; absolutely do not do that.The second point is that our window for democratic accountability is Congress. Engaging with Congress and lawmakers is not a passive burden for us, but an active and ongoing responsibility. You need to earn this accountability through interaction with these elected overseers, which requires effort, and I have personally been working hard on this.The final point is that it is actually easy to criticize government agencies, and there are many angles from which to do so. But I would tell my successor that you are about to engage with a group of people who are the most professional you will never have collaborated with in your life and will not encounter again.When you truly engage with the staff of the Federal Reserve—of course, not everyone is perfect—but in terms of commitment to the public good, no other institution has a more professional and dedicated group of people than the Federal Reserve.32. As you may have noticed, there has been a historic surge in gold and silver prices recently. I want to ask, to what extent do you pay attention to these trends? Do you interpret any information from the significant rise in these precious metal prices?Powell: From a macroeconomic perspective, I do not interpret too much information from it. Some might think this reflects that we are losing credibility or something like that, but that is not the case. If you look at where inflation expectations currently stand, our credibility is in the state it should beWe will not overreact to changes in the prices of certain specific assets; of course, we will monitor these changes, but that is all.33. Some well-known critics believe that the Federal Reserve's economic models are somewhat biased towards looking back at the past rather than forward to the future, and that they should incorporate more factors such as productivity improvements brought about by artificial intelligence. How do you integrate current and future analysis in your decision-making? What is your response to these criticisms?Powell: Yes. Overall, as someone involved in this, I believe these criticisms are unfounded, and I can explain why.Every FOMC member submits their economic forecasts each quarter, and these forecasts are compiled into the Summary of Economic Projections (SEP), which is a concentrated reflection of how we view the economy.Additionally, regarding the economic model itself, what it can do is take data from many years in the past—say, 50 years—and find the relationships between different variables, such as the relationships between A, B, C, and D. It can tell you what might happen to the macroeconomy if one of those variables changes; that is how the model works.But the problem is that the structure of the macroeconomy is constantly changing. For example, we haven't experienced a pandemic in 100 years, so the pandemic is not included in the model. We have been clear from the beginning that this is not in the model. Similarly, we have never encountered a trade war of this scale in the past 100 years, so there will always be significant uncertainty at different stages.One more point I want to emphasize is that when it comes to technological advancements that can enhance potential output, such as the technological revolution that occurred in the 1990s or the AI revolution that may be happening now, we are highly attentive to this.Everyone studies these historical phases, and we are very aware that productivity may remain at a high level, or it may not. No one is ignoring the possibility of rising productivity. We have been discussing this issue for three years, long before the current specifics.In fact, rising productivity has been ongoing for five or six years, and we have been discussing this throughout the process.All of this is firmly within our considerations. We are very clear that higher productivity means higher potential output, which will change your views on a range of issues such as inflation, employment, and growth. These factors are already reflected in our models. If someone believes there is a better model, then present it. Where is it? We are willing to adopt it. But I believe we have always maintained communication with everyone involved in economic modeling and have been striving to improve this matter; that is my view on this issue.34. In the past few months, we have been discussing the transmission of tariff impacts. However, the trade environment is still in a state of continuous change, with related announcements, threats, and negotiations frequently adjusting. How do you track these changes in practice? What data or channels are most critical?Powell: I believe our staff does an excellent job of tracking this in real-time. Once a tariff is implemented, its impact on prices is basically traceable and can be seen at almost every levelYou can summarize the impact of all tariffs and build a model.At the beginning, this is more of a prediction; but as each cycle passes, the model will increasingly be calibrated and supported by actual data.Moreover, our forecasters have not deviated too far.What has really changed is, as I mentioned earlier, the actual measures implemented are smaller in scale than initially announced. Additionally, we have not seen retaliatory measures at the international level, which many had anticipated would occur, and this is also very important.Another key issue is the speed of transmission. Previously, we did not know how quickly tariffs would be passed on to consumers, nor how much exporters would bear, how much companies in the intermediate links would bear, and how much consumers would bear. The result shows that companies in the intermediate links largely chose to absorb some of the costs themselves.This is also one of the reasons why we need to continue to pay attention to inflation and cannot declare victory too early