Jerome H. Powell, chair of the Federal Reserve, has raised concerns over the potential economic fallout from President Donald Trump’s tariffs. With inflation already a key issue, Powell warns that these tariffs could accelerate price increases and hamper economic growth, possibly leading to long-term challenges.
While the U.S. economy remains stable at present, Powell’s comments highlight the growing risks ahead.
According to AP News, the full impact of the tariffs is still unclear, but their possible effects on inflation and growth are already becoming a central focus for both policymakers and economists alike.
Impact on inflation and economic growth
Powell noted that the tariffs’ impact on the U.S. economy is likely to be “significantly larger than expected.” He also said that the import taxes will probably lead to “at least a temporary rise in inflation,” but added: “It is also possible that the effects could be more persistent.”
Powell’s primary concern is that the price increase, initially seen as a one-off, might become an ongoing inflation problem. He emphasized that the Fed’s
Federal Reserve’s response and future actions
In light of these risks, Powell emphasized that the Federal Reserve’s responsibility is to ensure long-term inflation expectations remain stable. As a result, the Fed is unlikely to cut interest rates in the near future, despite Wall Street speculating on potential rate cuts.
Powell also acknowledged that businesses are currently hesitant to invest, awaiting further clarity on the long-term economic effects of the tariffs. “There’s a lot of waiting and seeing going on, including by us,” Powell said during a question and answer session. Adding: “and that just seems like the right thing to do in this period of uncertainty.”
The Fed faces a complex challenge. While inflation has decreased significantly from its peak in 2022, the path to achieving the central bank‘s 2% inflation target has slowed.
Powell highlighted the tension between the Fed’s dual mandate to promote maximum employment and price stability, acknowledging that tariffs could complicate achieving both objectives. “The two goals … are in tension — or they may be,” he said.
Market reaction and uncertainties ahead
The market’s response to the tariffs has been one of uncertainty, with stock prices falling both domestically and internationally. Powell’s more negative outlook, compared to his prior stance, reflects the increased unpredictability surrounding these tariffs.
Economists warn that the tariffs could weaken hiring and put upward pressure on prices, complicating the Fed’s policy decisions moving forward.
“The Fed is in a tough spot with inflation set to accelerate and the economy poised to slow,” said Kathy Bostjancic, chief economist at Nationwide.
