Federal Reserve Chair Powell Announces Readiness to Extend Dollar Liquidity via Swap Lines to Foreign Central Banks

In a recent statement, Federal Reserve Chair Jerome Powell emphasized the Fed’s preparedness to support global financial stability by offering dollar liquidity to foreign central banks through established swap line mechanisms. This move aims to ensure sufficient USD availability in international markets, particularly during periods of heightened volatility or liquidity constraints. The Fed’s swap lines serve as a critical tool for maintaining smooth cross-border dollar funding flows, reinforcing the central bank’s role as a global liquidity provider.

Powell’s job has become much harder now

The Fed has two jobs—keep inflation under control and make sure the labor market stays strong. Powell said those two goals are now at risk of colliding. “We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” he said.

That means if prices keep rising due to tariffs, and the job market gets weaker at the same time, the Fed might be stuck choosing between fighting inflation or saving jobs. It can’t do both at once. Not with the way things are going.

Powell said that if the Fed is forced to react, they’ll first look at how far inflation is from the Fed’s 2% target. Then they’ll look at how bad the labor market gets. And finally, they’ll estimate how long it might take for either of those to return to normal.

“We would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close,” Powell said. He also made it clear that there’s no rush to change interest rates for now, because of how unpredictable trade policy has become.

“As that great Chicagoan Ferris Bueller once noted, ‘Life moves pretty fast,’” Powell said. “For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.”

Powell said that even if tariffs cause short-term inflation, the Fed’s main focus is to make sure people don’t start expecting inflation to stay high. The central bank believes that inflation expectations can cause more damage than inflation itself.

If businesses and households think prices will keep going up for years, they’ll act accordingly—raising prices, pushing for higher wages, pulling back on investments. That chain reaction is what the Fed wants to stop before it starts.

Inflation already surged in 2021. But it dropped hard after the Fed raised interest rates sharply in 2022 and 2023. By February, inflation had fallen to about 2.5%, down from over 7% in 2022. Powell warned that new tariffs could undo those gains.

He also hinted that if the Fed’s two goals come into conflict, the priority might be price stability. Powell said the Fed would try to find balance between fighting inflation and supporting the labor market, but added that “without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans.”

He compared the Fed’s situation to a soccer goalie guessing which way to dive on a penalty kick. It’s a split-second decision, and getting it wrong hurts. He said the Fed has to decide whether to deal with inflation or with slowing growth, knowing full well that fixing one could break the other.

During a press conference in November, Powell was asked what the Fed would do if it faced rising inflation and a stagnant economy at the same time. He refused to say exactly how the central bank would respond. 

“The whole plan is not to have stagflation, so we don’t have to deal with it,” Powell said. Then he admitted the real problem: “It’s, of course, a very difficult thing because anything you do with interest rates will hurt one side or the other—either the inflation mandate or the employment mandate.”

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