Jerome Powell, chair of the U.S. Federal Reserve, during a news conference following an FOMC meeting in Washington, D.C., on March 19, 2025. Photographer: Al Drago/Bloomberg.
Federal Reserve Chair Jerome Powell said that the economic impact of new tariffs is likely to exceed expectations and that the central bank must make sure that doesn’t lead to a growing inflation problem.
“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” Powell said in prepared remarks Friday at the Society for Advancing Business Editing and Writing annual conference. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
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His remarks follow President Donald Trump’s announcement of sweeping new tariffs on imports from across the globe, which has already begun provoking retaliatory responses from foreign governments. Powell’s tone was more cautious than his March 19 press conference, when he said the inflationary impact of tariffs was expected to be transitory. “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,” Powell said today.
He and his colleagues are facing a narrower path to land the economy back at full employment with low inflation. The tariffs announced by the Trump administration Wednesday challenge both sides of the Fed’s mandate to maintain stable prices and maximum employment. Today, Powell stressed that Fed action will be focused on arresting any rise in public perceptions that inflation was slipping from the Fed’s control. “Our obligation is to keep longer-term inflation expectations well-anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem. We are well-positioned to wait for greater clarity before considering any adjustments to our policy stance.” Fed officials will next gather on May 6 and 7 in Washington.
Shortly before Powell’s speech, Trump said on Truth Social that it is a “PERFECT” time for Powell to cut interest rates. “He is always ‘late,”’ Trump posted. “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”
Bloomberg Economics has estimated that the tariffs Trump has announced so far could take the average effective tariff rate in the United States to around 22 percent, from 2.3 percent in 2024. Forecasters are raising their estimates of the probability of a recession, and futures contracts on the benchmark lending rate show investors betting on as many as four cuts in the policy rate this year. However, inflation has been above the Fed’s 2 percent target since 2021, and tariffs—essentially a tax on imports—could further raise prices on a variety of consumer goods and services and squeeze margins at businesses trying to hold the line on price.
A tariff-induced spike in prices that produced second-round effects with further increases in inflation—and public expectations of higher prices over the medium term—would cause officials to hold back on cutting interest rates and raise the possibility of a rate increase. If, however, the tariffs result only in a one-time price shock with negative effects on growth and hiring, then Fed officials might consider the need for a cut, albeit with some delay as they wait for more data.
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