US Federal Reserve Chair Jerome Powell has stated that the recent tariffs introduced by President Donald Trump are likely to push inflation higher while dampening economic growth.
Speaking on Friday, Powell highlighted the growing uncertainty surrounding the US economic outlook. He said the new reciprocal tariffs, which were announced earlier in the week, have added further complexity to the Fed’s policy considerations.
Given the current circumstances, Powell explained that the Federal Reserve is in a strong position to pause and observe developments before making any decisions on interest rates. “It is still too early to determine the appropriate path for monetary policy,” he added.
Federal Reserve Chair Jerome Powell stated on Friday that he expects President Donald Trump’s tariffs to contribute to rising inflation and subdued economic growth. He also indicated that the central bank will hold off on any interest rate adjustments until there is greater clarity on the tariffs’ long-term impacts.
During a speech delivered to business journalists in Arlington, Virginia, Powell remarked that the Fed is facing a “highly uncertain outlook” due to the new reciprocal levies announced by the president on Wednesday. Although he noted that the economy currently appears robust, Powell emphasised the potential threat that tariffs pose to economic stability.
He underlined the Fed’s commitment to maintaining stable, long-term inflation expectations, adding that it is essential to ensure that any temporary price increases do not evolve into a persistent inflation problem. “We are well positioned to wait for greater clarity before considering any adjustments to our policy stance. It is too soon to say what will be the appropriate path for monetary policy,” Powell said in his prepared remarks.
Overall, his comments signal a cautious approach by the Fed, prioritising the need to monitor the evolving economic landscape before making any decisive moves on interest rates.
Federal Reserve Chair Jerome Powell’s comments came shortly after former President Donald Trump publicly urged him to “stop playing politics” and reduce interest rates, citing falling inflation. In response, Powell maintained a neutral stance, saying, “I make it a practice not to respond to any elected officials’ comments, so I don’t want to be seen to be doing that. It’s just not appropriate for me,” during a Q&A session following his speech.
Trump’s announcement of a 10% blanket tariff and additional higher tariffs for key trading partners triggered a wave of selling on Wall Street. Powell highlighted that the scale of the new tariffs was “significantly larger than expected,” which adds further uncertainty to the economic outlook.
He warned that the impact of these tariffs would likely include both rising inflation and a slowdown in economic growth. However, Powell stressed that the exact size and duration of these economic effects remain unclear, reinforcing the Federal Reserve’s cautious stance on making any immediate changes to monetary policy.
Focused on inflation
While Jerome Powell remained cautious about how the Federal Reserve might respond to the latest developments, market analysts are already anticipating significant rate cuts beginning in June. According to data from CME Group, investors are increasingly expecting the central bank to reduce its main interest rate by at least one percentage point before the end of the year.
The Fed’s primary responsibility is to maintain stable inflation while ensuring full employment. Powell emphasised that keeping inflation expectations under control will be crucial in meeting this mandate. However, that task may become more difficult with President Trump imposing tariffs on major trading partners, several of whom have already introduced retaliatory measures.
This increased attention on inflation could lead the Fed to delay any policy easing until the longer-term impact of tariffs becomes clearer. Historically, policymakers have viewed tariffs as causing only a short-term spike in prices rather than a sustained inflationary pressure. However, the broad and extensive nature of the latest tariff plans may challenge that assumption.
Powell acknowledged this uncertainty, stating, “While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent.” He added that avoiding longer-lasting inflation would depend on a number of factors, including the strength of inflation expectations, the scale of the tariffs, and how quickly their effects feed through into consumer prices.
Core inflation stood at 2.8% in February, showing signs of moderation but still sitting above the Fed’s target of 2%. Despite the uncertainty surrounding tariffs, Powell reassured that the overall economy remains in a relatively healthy position, with a strong job market. However, he did point to recent surveys which indicate growing public concern about inflation and a more cautious outlook for future growth, even as longer-term inflation expectations continue to align with the Fed’s goals.
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