Jerome Powell, the Chair of the Federal Reserve, expressed on Friday his concerns regarding President Donald Trump’s recently announced tariffs, suggesting they are likely to spur inflation and hinder economic growth. Powell noted that the Fed will refrain from adjusting interest rates until it gains a better understanding of the tariffs’ effects.
Speaking to business journalists in Arlington, Virginia, Powell characterized the economic outlook as “highly uncertain,” particularly due to the reciprocal tariffs initiated by the president earlier in the week.
Despite reporting that the economy appears robust at present, Powell underscored the potential risks posed by tariffs, emphasizing the Fed’s commitment to controlling inflation levels.
“Our primary responsibility is to ensure that long-term inflation expectations remain stable and to prevent a temporary spike in price levels from evolving into a sustained inflation issue,” Powell articulated in his prepared remarks. “We are in a strong position to wait for additional clarity before making any changes to our policy direction. It’s premature to determine the appropriate course for monetary policy.”
This statement came shortly after Trump urged Powell to “stop playing politics” and reduce interest rates, citing a decline in inflation.
Powell refrained from responding directly to Trump, maintaining a practice of not engaging with comments from elected officials. “I prefer not to be seen as responding to such statements, as it wouldn’t be appropriate,” he remarked during a question-and-answer segment following his speech.
The announcement of a blanket 10% tariff from Trump has triggered a wave of selling in financial markets, accompanied by additional tariffs that are considerably higher for numerous significant trading partners.
Powell pointed out that the newly declared tariffs were “substantially larger than anticipated.”
“The economic repercussions are likely to be similarly significant, manifesting as increased inflation and slowed growth,” he stated. “The extent and duration of these consequences remain uncertain.”
Emphasis on Inflation
While Powell was careful about outlining the Fed’s possible reactions to the evolving scenario, market analysts are increasingly anticipating a series of aggressive interest rate cuts beginning in June. There is a growing expectation that rates could be reduced by at least a full percentage point by year’s end, based on data from the CME Group.
Nonetheless, the Fed’s dual mandate requires it to maintain price stability while ensuring full employment.
Powell reiterated that controlling inflation will necessitate vigilant management of inflation expectations, which could be challenging given the new tariffs imposed by Trump that have already incited retaliatory actions from several trading partners.
A heightened focus on inflation could also dissuade the Fed from pursuing policy easing until the long-term impacts of tariffs on pricing are fully assessed. While policymakers generally view tariffs as temporary price increases rather than fundamental drivers of inflation, the sweeping nature of Trump’s tariffs might shift that viewpoint.
“There is a strong likelihood that tariffs will provoke at least a short-term rise in inflation, but it is also feasible that the effects could be more enduring,” Powell remarked. “Preventing such an outcome would rely on maintaining stable long-term inflation expectations, the magnitude of the effects, and the timeline for these changes to be reflected in prices.”
As of February, core inflation stood at an annual rate of 2.8%, a part of a broader trend toward moderation, albeit still above the Fed’s 2% target.
Despite concerns surrounding tariffs, Powell maintained that the current economic climate is “still in a good place,” highlighted by a strong labor market. He did, however, reference recent consumer surveys indicating rising apprehension about inflation and diminishing expectations for growth, while noting that long-term inflation expectations remain aligned with the Fed’s goals.
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