Federal Reserve Chair Jerome Powell is being investigated by the US Department of Justice over his testimony on renovations to the Fed's headquarters in Washington DC. It comes as the Fed faces a tough balance between keeping inflation in check and the labor market strong. In a wide-ranging interview with Yahoo Finance Senior Fed Reporter Jennifer Schonberger, Federal Reserve Governor Michael Barr weighs in on the Powell probe, shares his outlook for inflation, and what a new Fed chair would mean for the central bank. To watch more expert insights and analysis on the latest market action, che...
0:59Are you worried that the independence of the Federal Reserve is under threat and will you personally take steps to protect that independence?
1:25And how much signal are you taking from the data now given that we are still seeing a bit of a lingering impact from the government shutdown?
2:52Do you see a risk of inflation becoming persistent, especially when you looked at the Beige Book and we saw some of the anecdotal evidence there when you looked at the PPI report?
3:39Do you think things are stabilizing now in the job market?
4:56When you look at both sides of your dual mandate, are you more worried about inflation now versus the job side or how are you looking at things now?
5:58If the meeting were tomorrow, would you hold rate steady?
6:29A lot of things can change, but do you perceive any adjustments to the policy rate perhaps later this year, any rate cuts?
7:13How restrictive do you think you are right now?
7:23Do you see any shifts to the Fed being able to act independently?
I want to start the conversation with the grand jury's subpoenas that were served to the central bank by the Department of Justice and the investigation into Chair Powell. How did you learn about it? And when you did, what was your reaction? How did you feel? How do you see this?
Well, I think Chair Powell's statement from last Sunday was clear and direct on this point. It is an assault on the independence of the Fed, as was the earlier assault on Governor Cook. And I think these are just examples of the ways in which the independence of the Fed is being challenged. And I want to assure your listeners that we are acting only for economic reasons. We are acting only according to our congressional mandate. That's to make sure that we have price stability and maximum employment. That's what we've been focused on all along and that's what we will stay focused on.
As I said, we are acting only for congressionally mandated reasons. We're acting only in order to assure maximum employment and price stability. That's what we have been doing. That's what we will be doing. And the best way to demonstrate that to the American people is to do that.
Let's talk about inflation. We got some new readings on inflation this week. CPI on a core basis has been sitting at 2.6% for the past four months. We also got some readings on wholesale inflation. How are you looking at inflation now as well as specifically the impact of tariffs on prices? And how much signal are you taking from the data now given that we are still seeing a bit of a lingering impact from the government shutdown?
Well, the recent inflation data reinforces the concerns that I've had that inflation remains elevated. In core PCE terms, it's been hovering at about 3% over the last year. Services price inflation has started to come down. Goods price inflation has been rising. Those are kind of offsetting. The balance is that inflation has been too high over the last year. We had a period of time where we made substantial progress from 2022 to 2025. That progress right now has flattened out and we need to continue to do the work necessary to bring inflation all the way back down to our 2% target. Tariffs are having an effect on prices. We're seeing goods prices rise. The question is, will that be a one-time event where they rise and then they're done rising and then we'll start to see inflation fall back towards our target? Or might we see persistence of that? And that's really what I'll be focused on on the inflation front.
And what's your perception now? Do you see a risk of inflation becoming persistent, especially when you looked at the Beige Book and we saw some of the anecdotal evidence there when you looked at the PPI report?
Well, I do think we're going to continue to see goods prices rising in the early part of this year. I think a reasonable base case is that those price increases stop going up once tariffs are fully incorporated into prices, but there's a significant risk that they don't. And that's the risk that we have to watch out for. So, we're looking at the labor market. We're looking at the inflation side. We're balancing those risks. I think right now we're in a good place in terms of our interest rate policy to be able to take some time and really assess the inflation effects over the course of the next year.
I do want to get to the path on policy, but you also mentioned the job market and the Fed cut rates three times the tail end of last year on concerns about the job market. We got the December employment report, the unemployment rate dropped to 4.4%. Do you think things are stabilizing now in the job market? Albeit perhaps at a lower level.
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