Federal Reserve Chairman Jerome Powell on Friday (4) warned that the new tariffs announced by former President Donald Trump are likely to raise inflation and slow down the U.S. economy, delivering a sobering message at the annual Society for Advancing Business Editing and Writing (SABEW) conference.
Calling the economic impact “significantly larger than expected,” Powell said the tariffs would likely cause “at least a temporary rise in inflation,” though he also admitted that “it is possible that the effects could be more persistent.” His remarks painted a much grimmer picture than his previous comments last month, when he downplayed the inflationary consequences of the proposed import taxes.
“Our obligation is to ensure that a one-time increase in the price level does not evolve into a prolonged inflation problem,” Powell said. The Fed’s dual mandate — to maintain maximum employment and price stability — could be challenged as the economy grapples with rising costs and potentially slowing growth.
The tariffs, revealed by Trump earlier this week, have already sent shockwaves through global markets, prompted retaliatory threats from China, and rattled investor confidence. Powell’s warning suggests that the central bank is now reconsidering its near-term monetary policy strategy in light of the unexpected changes in trade policy.
Currently, the Federal Reserve’s benchmark interest rate sits at approximately 4.3%. While many on Wall Street had expected the Fed to begin cutting rates this year — with some even forecasting up to five cuts — Powell’s remarks indicate a likely pause, at least until the Fed has more clarity.
“There’s a lot of waiting and seeing going on, including by us,” Powell said during a Q&A session, emphasizing the uncertain economic environment created by the tariffs. He also noted that many businesses are delaying investments until the full impact of the duties is better understood.
Meanwhile, Trump took to his Truth Social platform to pressure Powell, writing, “This would be a PERFECT time for Fed Chairman Jerome Powell to cut interest rates. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”
Economists warn that the U.S. may be entering a precarious phase, where inflation climbs even as economic growth weakens. “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. In such a scenario, the central bank may be forced to choose between stimulating the economy or containing inflation — two goals that may now be in conflict.
Powell acknowledged that recent inflation data showed a slowdown in progress toward the Fed’s 2 per cent target. Although inflation has dropped considerably from its 2022 peak, signs of stickiness remain. At the same time, consumer sentiment and business outlooks have turned more cautious.
Despite these concerns, the U.S. labor market continues to show strength. Government data released Friday showed that 228,000 jobs were added in March. However, the unemployment rate ticked up slightly to 4.2 per cent from 4.1 per cent. Powell cautioned that these numbers reflect pre-tariff conditions and may not accurately predict the months ahead.
The longer-term implications of Trump’s tariff policy are still unfolding. For now, the Federal Reserve appears poised to hold steady on interest rates, prioritizing inflation management amid rising uncertainty over trade and global economic stability.
With both employment and price stability potentially at risk, Powell made it clear the central bank must tread carefully. “The two goals are in tension — or they may be,” he concluded.
