Kennedy questions Fed Chair Jerome Powell on bond market, weakness in dollar, tariffs on inflation

Kennedy: The reconciliation bill is the most extraordinary legislation you’ve ever seen? Did I hear that correctly?

Powell: There may have been some lost in translation. I was a little late.

Kennedy: tell me what the bond market is telling you.

Powell: Bond markets. Fine. Now functioning well, it’s pricing. You know, it’s reacting to economic news. There’s adequate liquidity. Rates have come down pretty significantly from where they were a couple months ago. I think inflation expectations have come down a bit from April. And in general, the bond market is functioning well.

Kennedy: Explain to me why we have seen in the last few months a weakness in the dollar.

Powell: That’s a great question. And of course, the Treasury Department has the job of is responsible for the role of the dollar. I don’t know, I think the I would go back to the thought that, markets have been digesting an unusually challenging set of circumstances. dollar’s kind of stabilize now. It’s fact. It’s moved back up here in the last couple of weeks a bit. there are plenty of people who are still writing that the dollar is still overvalued. We don’t have a view on that, of course, but, I wouldn’t I wouldn’t really have an opinion on exactly why it is where it is.

Kennedy: clearly there’s a lot of geopolitical risk right now, which would lead one to conclude, all things being equal, that people would be flocking to the dollar and it would be stronger.

Powell: Well, you have seen some of that here in the last few days. But again, I don’t really have an official view. I’d like to share on that. I think there are possible explanations, multiple possible explanations again, one of which is that some people still feel the dollars is highly valued. Yeah. But we’ll see.

Kennedy: What does history tell us about tariffs and, and its impact on inflation or deflation?

Powell: So the thing is you know, we’ve been through a long period in which tariffs were going down rubber since World War Two. Really it’s been a process of lowering tariffs globally. So there just isn’t a lot of modern, learning on that. I think people look at the incidence of tariffs during the president’s first term. But those were like one sixth the size of what’s people are estimating now. they do find some effects on inflation. But remember in 19 2019 when those tariffs were put into place, the economy was slowing and we actually cut rates three times. Inflation was running at 1.5%. So it was a very different time. this is different. I think one of the reasons why it’s so challenging is that there really isn’t a modern precedent. And I think we have to be humble about our estimates, and we are very open to the possibility that transmission through into inflation will be less than we think, or maybe more than we think, which is why we’re in a position of wanting to take our time and make a make a smart decision as we as we see how this unfolds.

Kennedy: Well, obviously the size of the tariffs makes a difference, does it not? It does.

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Kennedy questions Fed Chair Jerome Powell on bond market, weakness in dollar, tariffs impact on inflation