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S ince Fed officials last met in January, consumer surveys and economic data have flashed warning signs of rising inflation risks and slowing growth.

Consumer spending shrunk 0.5% in January and retail sales last month rose a lower-than-expected 0.2%.

C onsumer sentiment has slumped in recent weeks and expectations for higher price pressures have increased, according to surveys by the Conference Board and University of Michigan.

The dual risk of weakening growth with rising inflation — or “stagflation” — stems primarily from policy shifts by the Trump administration, including higher tariffs, widespread layoffs of federal employees and plans for mass deportations, according to economists.

“The new administration is in the process of implementing significant policy changes in four distinct areas — trade, immigration, fiscal policy and regulation,” Powell said. “It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy.

“While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high,” he said. “As we parse the incoming information, we're focused on separating the signal from the noise” when considering changes to monetary policy.

President Donald Trump and his top advisors have said that their initiatives may lead to short-term economic disruption while strengthening U.S. manufacturing and the economy over the long term.

“Tariffs are about making America rich again and making America great again,” Trump said in his state of the union address this month. “There'll be a little disturbance. We're okay with that. It won't be much.”

Goldman Sachs last week downgraded its forecast for gross domestic product growth in 2025 to 1.7% from 2.4% at the start of the year.

“Our trade policy assumptions have become considerably more adverse and the [Trump] administration is managing expectations towards tariff-induced, near-term economic weakness,” Goldman Sachs Chief Economist Jan Hatzius said in a research note.

The U.S. tariff rate will likely rise 10 percentage points, double the previous forecast by Goldman Sachs and five times more than during the first Trump administration, Hatzius said.

The Atlanta Fed on Tuesday forecast that gross domestic product will likely shrink at a 1.8% annual rate during the first quarter. The regional Fed bank on March 7 predicted a 1.6% contraction during Q1.

Powell said he sees underlying strength in the economy.

“Growth looks like it's maybe moderating a bit, consumer spending moderating a bit, but still at a solid pace,” Powell said, noting that unemployment is at the comparatively low level of 4.1%, with job creation “at a healthy level.”

“Inflation has started to move up now, we think, partly in response to tariffs, and there may be a delay in further progress over the course of this year,” he said, adding “overall, it's a solid picture.”

Powell’s comments echoed a post-meeting statement by the Federal Open Market Committee.

“Recent indicators suggest that economic activity has continued to expand at a solid pace,” the FOMC said in a statement , while noting that “inflation remains somewhat elevated” and “ uncertainty around the economic outlook has increased.”

There has been no sign of a sudden jump in prices.

Inflation last month rose less than expected, the Bureau of Labor Statistics said last week. After gaining 0.4% in January, the core consumer price index excluding volatile food and energy prices increased 0.2% in February , fueled largely by a 0.3% rise in shelter costs and 0.9% increase in used cars and trucks.

Still, Powell has cautioned for months that the path back down to the Fed’s 2% inflation target will likely be bumpy.

“We see this in both market and survey based measures and survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor beyond the next year or so,” Powell said, referring to the outlook for price pressures. “However, most measures of longer term [inflation] expectations remain consistent with our 2% inflation goal.”

Fed officials see no urgency to adjust borrowing costs and can recalibrate monetary policy to handle either side of the central bank’s dual mandate to ensure price stability and maximum employment, Powell said.

“We do not need to be in a hurry to adjust our policy stance, and we are well positioned to wait for greater clarity,” he said.