Powell: Trump's Tariffs to Raise Inflation, Slow Growth

Federal Reserve Chairman Jerome Powell said Friday that he expects US President Donald Trump's tariffs to raise inflation and reduce growth, indicating that the central bank will not make any changes to interest rates until the final effects become clear, according to CNBC.

In a speech to business reporters in Arlington, Virginia, Powell said the Fed faces a "highly uncertain outlook" due to the new tit-for-tat tariffs announced by the president on Wednesday.

While he said the economy currently appears strong, he emphasized the threat posed by the tariffs and emphasized that the Fed will focus on keeping inflation under control.

"Our duty is to maintain stable long-term inflation expectations and ensure that any one-time increase in the price level does not become a persistent inflation problem," Powell said in prepared remarks.

He added, "We are well positioned to wait for further clarity before considering any adjustments to our policy stance. It is too early to determine the appropriate path for monetary policy."

These remarks came shortly after Trump called on Powell to “stop playing politics” and cut interest rates due to low inflation.

Wall Street saw a sell-off following Trump’s announcement of a 10% tariff across the board, along with a list of much higher reciprocal tariffs on several major trading partners.

Powell noted that the announced tariffs were “much larger than expected.”

“The same is likely to be true for the economic effects, which will include higher inflation and slower growth,” he said. “The magnitude and duration of these effects remain uncertain.”

While Powell was cautious about the Fed’s response to the changes, markets are pricing in a series of aggressive rate cuts starting in June, with the likelihood of the central bank cutting its key interest rate by at least a full percentage point by the end of the year increasing, according to CME Group data.

However, the Federal Reserve is tasked with maintaining stable inflation through full employment. Powell emphasized that achieving the inflation target requires keeping inflation expectations in check, which may not be easy given Trump's imposition of tariffs on U.S. trading partners, some of whom have already announced retaliatory measures.

The greater focus on inflation is also likely to deter the Federal Reserve from easing monetary policy until it assesses the long-term impact of tariffs on prices. Policymakers typically view tariffs as merely a temporary spike in prices and not a primary driver of inflation, but the broader nature of Trump's move could change that perspective.

"While tariffs are very likely to lead to at least a temporary spike in inflation, their effects could also be more persistent," Powell said. "Avoiding that outcome depends on maintaining stable long-term inflation expectations, the magnitude of these effects, and the length of time it takes for them to fully reflect in prices."

Core inflation reached 2.8% annually in February, part of a moderate overall trend, but still well above the Federal Reserve's 2% target. Despite growing concerns about tariffs, Powell stated that the economy remains in good shape, with a strong labor market. However, he pointed to recent consumer surveys showing rising concerns about inflation and declining expectations for future growth, noting that long-term inflation expectations remain consistent with the Fed's goals.