ARLINGTON, Va. — According to Federal Reserve Chair Jerome Powell on Friday, the Trump administration’s newly implemented, extensive tariffs are anticipated to drive inflation upwards and curtail economic expansion. The Federal Reserve’s primary objective will be to ensure that any price increases remain temporary.
In prepared remarks, Powell stated that the magnitude of the tariffs, along with their subsequent effects on the economy and inflation, “significantly exceeds prior expectations.” He further commented that these import taxes will “highly likely” trigger “at least a temporary surge in inflation,” while also acknowledging “it is also possible that the effects could be more persistent.”
“Our duty is to … ensure that a one-time jump in prices does not evolve into a persistent inflation issue,” Powell stated during his address in Arlington, Virginia.
Powell’s emphasis on inflation implies that the Federal Reserve is likely to maintain its key interest rate steady at roughly 4.3% in the near future. This stance might be disappointing for Wall Street investors who are currently anticipating five interest rate reductions this year, a figure that has grown since President Donald Trump’s tariff announcement on Wednesday.
Economists predict the tariffs will weaken the economy, potentially threaten job creation, and drive up prices. In such a scenario, the Fed could lower rates to stimulate the economy, maintain current rates, or even raise them to combat inflation. Powell’s statements suggest the Fed’s primary focus will be on managing inflation.
Powell’s comments were made two days after Trump introduced comprehensive tariffs that have disrupted the global economy, triggered retaliatory measures from China, and caused stock prices in the U.S. and abroad to plummet.
Slower growth coupled with rising prices presents a difficult challenge for the Fed. Typically, the central bank would lower its key interest rate to reduce borrowing costs and stimulate the economy in response to slower growth. Conversely, it would raise rates — or keep them elevated — to curb spending and control inflation.
“The Fed finds itself in a challenging position with inflation poised to accelerate and the economy on the brink of a slowdown,” noted Kathy Bostjancic, chief economist at Nationwide.
There was some positive news on Friday with the government’s report of accelerated hiring in March, with 228,000 jobs added, although the unemployment rate edged up from 4.1% to 4.2%.
However, these figures reflect hiring trends in mid-March, before the full extent of the tariffs was apparent. The tariffs have also heightened uncertainty regarding the economy’s performance in the coming months, potentially limiting businesses’ willingness to invest and expand their workforce.
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