Powell sees tariffs raising inflation and says Fed will wait before further rate moves
Federal Reserve Chair Jerome Powell said Friday that he expects President Donald Trump’s tariffs to raise inflation and lower growth, and indicated that the central bank won’t move on interest rates until it gets a clearer picture on the ultimate impacts.
In a speech delivered before business journalists in Arlington, Va., Powell said the Fed faces a “highly uncertain outlook” because of the new reciprocal levies the president announced Wednesday.
Though he said the economy currently looks strong, he stressed the threat that tariffs pose and indicated that the Fed will be focused on keeping inflation in check.
“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,” Powell said in prepared remarks. “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.”
The remarks came shortly after Trump called on Powell to “stop playing politics” and cut interest rates because inflation is down.
There’s been a torrent of selling on Wall Street following the Trump announcement of 10% across-the-board tariffs, along with a menu of reciprocal charges that are much higher for many key trading partners.
Powell noted that the announced tariffs were “significantly larger than expected.”
“The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” he said. “The size and duration of these effects remain uncertain.”
Focused on inflation
While Powell was circumspect about how the Fed will react to the changes, markets are pricing in an aggressive set of interest rate cuts starting in June, with a rising likelihood that the central bank will slice at least a full percentage point off its key borrowing rate by the end of the year, according to CME Group data.
However, the Fed is charged with keeping inflation anchored with full employment.
Powell stressed that meeting the inflation side of its mandate will require keeping inflation expectations in check, something that might not be easy to do with Trump lobbing tariffs at U.S. trading partners, some of whom already have announced retaliatory measures.
A greater focus on inflation also would be likely to deter the Fed from easing policy until it assesses what longer-term impact tariffs will have on prices. Typically, policymakers view tariffs as just a temporary rise in prices and not a fundamental inflation driver, but the broad nature of Trump’s move could change that perspective.
Source: CNBC
