The Federal Reserve Bank of Richmond recently addressed economic uncertainty in a lecture at Washington and Lee University. The speaker, who is not a Ph.D. economist but has extensive experience in business consultancy, shared insights on the current economic sentiment.

The speaker noted that "the beliefs and outlook of consumers and businesses help drive the economy," influencing decisions like hiring, investments, and wage adjustments. At the end of 2024, conditions appeared favorable with GDP growth at 2.5%, unemployment at 4.1%, and inflation decreasing to 2.6%. However, recent federal policies have introduced instability, causing a decline in business optimism and consumer sentiment.

"Business optimism has dropped," they stated, adding that "the March edition of the Fed’s Beige Book...broke the record for mentions of 'uncertainty.'" Despite some known factors such as potential tariffs and immigration changes, uncertainty prevails about their ultimate impact.

The speaker highlighted how rapid media coverage exacerbates shifts in sentiment: "You can’t miss the headlines." This has led to businesses being cautious or "on pause," particularly those affected by potential federal spending changes or tariffs.

Consumers are also showing caution due to normalizing wage growth expectations amidst rising inflation expectations from tariff discussions. This situation signals weaker consumer spending strength.

In terms of monetary policy, the Federal Open Market Committee (FOMC) held interest rates steady at its last meeting due to ongoing uncertainties: "We face the same fog as businesses and consumers." The committee remains ready to adjust if conditions change but is currently adopting a careful approach until more clarity emerges.