Fed Chair Powell Warns: Tariffs May Hit Harder Than Expected, Inflation Could Persist
Financial markets have been expecting significant interest rate cuts this year to counter an economic slowdown. However, Federal Reserve Chair Jerome Powell’s latest remarks suggest the Fed is in no hurry to make such moves.
Speaking at a conference for business journalists, Powell cautioned that President Donald Trump’s newly announced tariffs—larger than initially anticipated—could lead to prolonged inflation and slower economic growth, complicating the Fed’s policy decisions.
“We face a highly uncertain landscape, with risks to both unemployment and inflation becoming too high,” Powell said, warning that these risks could undermine the central bank’s dual mandate of maintaining 2% inflation and maximizing employment.
While tariffs typically cause only a temporary rise in inflation, Powell suggested the latest increase could have a more lasting effect. “It is now becoming clear that the tariff increase will be much larger than expected. The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” he said.
Given the uncertainty surrounding trade policies, the Fed has put its interest rate stance on hold. “We are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell explained, adding that it is too soon to determine the right course for monetary policy.
According to Axios, financial markets have been anticipating aggressive rate cuts to counteract an economic slowdown. However, Powell’s comments indicate that the Fed may tolerate a short-term price hike while closely monitoring labor market conditions.
Powell’s greater concern is that persistent inflation could erode consumer confidence in price stability, triggering a cycle of rising costs. “The Fed’s obligation is to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” he emphasized.
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