Federal Reserve Chair Jerome Powell has expressed growing concern over the economic impact of newly announced tariffs introduced by former President Donald Trump. Speaking at the Society for Advancing Business Editing and Writing’s annual conference, Powell highlighted that the scale of these tariffs exceeded expectations and could significantly complicate the Federal Reserve’s path forward.
Tariffs Expected to Hit Inflation and Growth
In his prepared remarks, Powell didn’t mince words about the consequences of the new trade measures. “While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected. The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” he stated.
The Trump administration’s new policy includes a blanket 10% tariff on all foreign imports. Countries with large trade surpluses with the U.S. will face even steeper levies, which economists warn could raise the effective tariff rate above 25%. This shift is expected to weigh on economic expansion and put upward pressure on prices across a range of goods.
Fed Holds Steady Amid Economic Uncertainty
Despite the potentially disruptive effects of the new tariffs, Powell made clear that the central bank is not planning any hasty policy moves. Instead, the Fed intends to remain patient and await further data. “We are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said. “It is too soon to say what will be the appropriate path for monetary policy.”
The central bank’s cautious stance is influenced by several uncertainties, including the specific details of the tariffs, how long they will remain in effect, and the likelihood of retaliatory measures from trade partners. Powell emphasized that these variables will be closely watched before any decisions are made.
Current Economic Outlook: Stable but Challenged
Powell acknowledged that the U.S. economy is currently in “a good place,” with healthy growth, a solid labor market, and inflation running above the Fed’s 2% target. However, he warned that this stability could be threatened if the tariff hikes filter into prices over the coming months. “Higher tariffs will be working their way through our economy and are likely to raise inflation in coming quarters,” he said.
Recent economic data suggests inflation is already proving stubborn. The core Personal Consumption Expenditures (PCE) price index—widely regarded as the Fed’s preferred inflation gauge—climbed 2.8% year-over-year in February. This further complicates the inflation fight, especially if tariffs worsen price pressures.
Inflation Expectations Remain Anchored—for Now
Despite these risks, Powell tried to strike a balanced tone. He pointed out that while progress toward the 2% inflation goal has slowed, inflation expectations remain “well anchored.” He emphasized that the central bank would work to ensure that tariff-driven price increases do not turn into long-term inflation problems.
The Fed’s ability to manage these emerging threats will depend on its flexibility and patience. Powell’s speech underlined that the central bank is not rushing into policy changes but remains watchful and ready to adapt as conditions evolve.
