President Donald Trump’s higher-than-expected tariffs will raise inflation and reduce economic growth, the chairman of the Federal Reserve warned Friday, in his first public remarks since Trump’s “Liberation Day” announcements.
That assessment from Chair Jerome Powell is in sharp contrast to his views last month when he said that tariffs would be “transitory.” Mr. Powell revised his stance, stating that economic effects like higher inflation and slower growth were likely to be felt.
“While tariffs are highly likely to generate at least a temporary rise in inflation, it’s also possible that the effects could be more persistent,” said Mr. Powell, at the annual meeting of the Society of Advancing Business Writers and Editors (SABEW), held outside Washington, DC. He acknowledged new policy changes in trade, fiscal policy, immigration, and regulation.
The tariffs, which will cost U.S. importers $792 billion in total, will target 185 nations globally, increasing tariffs on some countries by 50%. After “Liberation Day,” stocks plummeted trillions of dollars in total value, coming off the worst week since the pandemic, according to Yahoo Finance.
The reciprocal tariffs have been compared to economic shocks such as the 2008 financial crisis and most recently, the COVID-19 pandemic, which drove unemployment and inflation rates to record highs, while generating vast amounts of uncertainty.
But Powell said that while the situations “rhyme,” they still differ. The pandemic required the Fed to take decisive action to cut interest rates “with force.” In this situation, higher unemployment and higher inflation would require opposite actions to either slow down or speed up the economy, he said.
However, he said that the Fed’s dual mandate– maximum employment and stable jobs– were not yet at odds with each other.
“If we find ourselves in that situation, we would look at how far each of the two variables are from its goal, and ask ourselves how long would it take to get back? We would weigh those things and make a decision about what to do.”
Despite uncertainty about tariffs on both consumers and the central bank’s part, the Fed is in a waiting period of seeing the effects—and isn’t planning on taking any rate cutting measures any time soon.
“We still don’t know where this comes to rest…It feels like we don’t need to be in a hurry, it feels like we have time. It’s not clear to me what monetary policy will be,” said Mr. Powell.
But the President seems to feel otherwise. “This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always “late,” but he could now change his image, and quickly…CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!” posted Trump on Truth Social.
Contrary to Trump’s statements on “playing politics,” Powell made a point to emphasize the apolitical, nonpartisanship nature of the Fed– stating that the purple tie he commonly wears when speaking at events emphasizes his commitment to neutrality and not making political statements.
“In a moment of incredible volatility, his thinking is so solid, grounded, and stable. There was something very reassuring about that to me, like the Fed is the Fed, and they’re just apolitical. They react to the decisions that happen, but don’t have thoughts about them,” said Stacey Vanek Smith, senior story editor at Bloomberg, who interviewed Mr. Powell at SABEW.
“I really wish I knew what he thought, but I’m glad I don’t know.”
