Powell says the Federal Reserve may have to choose between unemployment solution or inflation

• Federal Reserve Chairman Jerome Powell said that the current size and the size of definitions, if left unchanged, are likely to cause high unemployment and inflation. The United States has suffered from a devastating attack from “stagnation” in the 1970s, which requires a painful stagnation to treat fleeing price growth.

The Federal Reserve may have decided to maintain fixed interest rates, but it also seemed to warn that President Donald Trump’s tariff might force it to choose between reducing inflation or unemployment rate.

Over the past few years, the central bank has only had to focus on inflation. Yes, the prices were high, especially in the summer of 2022, but the labor market was prosperous. This means that the Federal Reserve had the luxury of focusing all his efforts on one task, albeit a challenge.

With the definitions that cause wide uncertainty throughout the economy, the central bank may have to face high prices and unemployment. The real puzzle is that the solution for one usually exacerbates the other.

As Federal Reserve Chairman Jerome Powell said at his press conference on Wednesday, this scenario will force the central bank to issue a “complex and difficult ruling.”

“We may never face it, but we have to remain in our thinking now,” said Powell.

When inflation rises, the Federal Reserve raises interest rates to cool the economy. But when unemployment rises, the bank does the opposite and reduces prices to stimulate the economy. In the rare scenario where both inflation and unemployment rises, the Federal Reserve tends to choose one based on any of the two believed to be easier to solve, according to Powell.

Powell said: “We will look at the extent of goals, to what extent are they expected to be goals, what is the expected time to return to their goals,” Powell said. “We look at all these things and make a difficult judgment.”

In addition to increasing the risks of high inflation and unemployment, the United States also faces the possibility of low growth. Slow growth leads to high inflation rates to recession – one of the most feared words in the economy.

What is the recession?

The United States has suffered that its most famous seizure with recession in the late 1970s, when an increase in oil prices caused a devastating mixture of increased inflation and high unemployment. The growth of fleeing prices decreased only after the president raised the beans at that time interest rates to its highest levels ever, which led to a painful stagnation. Now there are concerns that the president will put the central bank in a similar pickled.

“If the large increases in the definitions that have been announced are sustainable, it is likely to generate an increase in inflation, slow economic growth, and an increase in unemployment,” said Powell.

Currently, most economic data remains strong, even when Powell acknowledged that consumer morale and other “soft data” measurements have decreased. Jimmy Cox, administrative partner of the Harris Financial Group in Richmond, Virginia, said the tremendous uncertainty about commercial policy is greater than being ignored.

He said: “The Federal Reserve does not withdraw any punches on the possibility of definitions in stagnation.”

Of course, what happens after that is guessing anyone.

Powell said: “If you talk to companies, market participants, or forecaster, then everyone is waiting only to find out how to play developments, and then we will be able to make a better evaluation of what is the appropriate path for monetary policy,” Powell said.

FED soft landing in danger

When it comes to payment, many believe in Wall Street that the Federal Reserve will intervene when the labor market weakens and low rates. After the press conference of Powell, traders are now pricing three to four discounts by the end of the year, according to the CME’s Group Fedwatch tool.

“It will be an interesting summer,” wrote Greg McBraide, Senior Financial Analysts at Bankraate, in a note on Wednesday.

Trump explained his preferences: He believed that interest rates should have decreased five months ago. However, McBraide indicated, the president may want to be careful of what he wishes.

“It is tempting to give a romantic character to the idea of ​​low interest rates, especially from the borrowing perspective.” “But the reason for the low interest rates is very important. We want interest rates to decrease because inflation pressure is abandoned, not because the economy weakens. Unfortunately, if the rates decrease in the coming months, it is more likely that the economy has weakened.”

The White House did not immediately respond to a request for comment.

The Federal Reserve may have slowly responded when inflation reached its highest level in late 2021, but the system of price discrimination in the central bank appears to appear to be in price without economics tanks. Now, Powell admitted that the current range and the size of definitions can put the so -called soft landing in danger.

Powell said: “We will not make progress towards these goals, if this is the way the definitions are achieved,” Powell said.

Powell said commercial conversations with other countries can change the image significantly. For example, Treasury Secretary Scott Beesen and American Trade Representative, Jameson Jarir, will meet with their Chinese counterparts this week.

Robert Konzo, CEO of the registered investment consultant, the wealth coalition, said that the central bank is at the mercy of the president when it comes to following up on both the full stability of employment and prices luck.

He wrote in an email message: “The Federal Reserve’s effectiveness to maintain their way on this double mandate,” depends on the ability of the administration to negotiate effectively on tariff deals. “

This story was originally shown on Fortune.com