Jerome Powell, Federal Reserve chairperson has expressed alarm at President Donald Trump’s new tariffs. He warned that they could have a more serious economic impact than expected. Inflation may rise and the economy will slow down amid increasing uncertainty.
Powell warned that, speaking at a business journalism conference in Arlington, Virginia he was “larger” than expected and this could create a set of complex challenges for both the US economy as well as the US central bank.
Fresh tariffs announced Wednesday, targeting many global trading partners have already caused financial turmoil. Major US stock indexes were down around 10% by Friday.
Powell:
The outlook is highly insecure, with increased risks for both higher unemployment as well as higher inflation.
He added that this directly undermines both the dual Fed mandates of maximum employment and price stability.
Powell did not directly comment on the recent sharp stock sell-off but acknowledged in his speech the tough choices that monetary policymakers will face.
He said that the Federal Reserve will continue to focus on anchoring inflation expectations for the long term while also assessing any fallout of the tariffs.
Powell said that although initial tariff impacts usually lead to temporary increases in prices, this time the effects may be longer lasting.
He said, “Our duty is to make sure that an increase in price levels does not turn into a problem of inflation.”
For now, the Fed will continue to monitor incoming data and not take any immediate actions.
Powell said that it was too early to determine the best path to take for monetary policies. He noted the Fed’s ability to be patient and wait until more clarity is available.
The central bank faces a challenge in reconciling “hard” statistics — such as March’s 228,000 jobs created and the 4.2% unemployment rate — and “soft” indicators, like business sentiment or surveys that indicate an impending economic downturn.
Powell said that this divergence could grow as economic tensions are felt.
The markets have responded strongly.
The Fed is now expected to cut rates by four quarter points this year, compared with three prior to Trump’s tariffs.
Analysts estimate the average US import tax could reach 27%. This is a substantial increase over 2.5% during Biden’s administration.
China has also taken retaliatory actions in response to the broader fallout of trade. Beijing has increased tariffs by 34% on US products, limited mineral exports that are vital for the tech sector, and restricted imports of American chicken — a sign of rising geopolitical tensions and economic pressures.
Powell’s concern was echoed by other Fed officials. Fed Governor Lisa Cook stated that expectations of inflation had begun to rise before Trump announced his decision.
Vice-Chair Philip Jefferson said that uncertainty may affect household and business expenditures, and Fed Governor Adriana Kugler noted that there are early signs that stagflation – a toxic combination of stagnant inflation and growth – is on the rise.
Powell has made it clear that the Fed’s top priority is to protect economic stability and control inflation in this turbulent environment. The Fed is facing a more difficult task as tariffs increase.
The post Powell warns Trump’s steep tariffs could trigger higher inflation and slow US Growth may be updated as new developments unfold.
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