Fed Vice Chair Highlights Economic Uncertainty Amid Policy Shifts

The U.S. economy is navigating a period of heightened uncertainty, according to the latest remarks from a senior Federal Reserve official addressing regional financial leaders. Recent economic data shows resilience, but emerging policy changes—especially concerning trade—are starting to cloud the outlook.

Growth in the first quarter of 2025 showed mixed signals: while gross domestic product contracted slightly, core components like private domestic purchases remained robust at a 3 percent annual rate, aligning with last year’s performance. Consumer spending, after a sluggish start in 2025 potentially triggered by poor weather and seasonal quirks, rebounded in March—possibly in anticipation of new tariffs. However, broader business sentiment has deteriorated, with surveys indicating concerns about higher prices and potential supply chain disruptions caused by shifting trade policies. This uncertainty has led to a downward revision in economic growth forecasts for the year, though continued expansion is still expected.

Labor market conditions remain stable, with the unemployment rate holding at 4.2 percent in April and job creation proceeding at a moderate pace. Signs suggest that the job market has settled into a balance consistent with stable employment and limited inflationary pressure. Nevertheless, officials are on the lookout for any labor market cooling should economic activity slow due to policy-driven headwinds.

On inflation, the latest data point to continued—albeit incomplete—progress toward the Fed’s 2 percent target. While overall and core inflation have both retreated significantly from their peaks, recent tariff actions risk interrupting this trend and causing at least a temporary uptick in prices. The future path of inflation remains uncertain, hinging on how new policies are enacted and their economic ripple effects. Encouragingly, longer-term inflation expectations appear stable, signaling public confidence in the Fed’s commitment to price stability.

Monetary policy remains on hold, with the current stance viewed as "moderately restrictive" and well-suited to respond if risks materialize on either side of the Fed’s dual mandate—maximum employment and stable prices. The central bank is taking a wait-and-see approach, closely monitoring the evolving economic and policy landscape and reaffirming its readiness to act if conditions change meaningfully.

This update underscores the complex balancing act facing the Federal Reserve as it seeks to steer the economy through a period of significant policy shifts and lingering post-pandemic volatility.