Jerome Powell, Chair of the US Federal Reserve System, during the Association for the Annual Meeting of Business Editor and Writing (SABEW) held in Arlington, USA on Friday, April 4, 2025. | Photo Credit: Bloomberg
The Trump administration’s vast new tariffs are likely to lead to higher inflation and slower growth, and the Federal Reserve will focus on maintaining temporary price increases, Federal Reserve Chairman Jerome Powell said Friday.
Powell said in a statement that the tariffs, the impact on the economy and inflation is “significantly greater than expected.” He also said import taxes are “very likely” to lead to “at least a temporary rise in inflation,” but added that “the effect could also be more sustained.”
“Our duty is to make sure that a one-time price level rise is not a problem of ongoing inflation,” Powell said in a statement in Arlington, Virginia.
Powell’s focus on inflation suggests that the Fed will likely not change benchmark interest rates at a rate of around 4.3% over the coming months. This is likely to disappoint Wall Street investors who are hoping to cut interest rates five times this year. This has been rising since President Donald Trump announced tariffs on Wednesday.
Economists predict that tariffs will weaken the economy, threaten jobs and boost prices. In that scenario, the Fed can cut fees to strengthen the economy. Or you can even hike them without changing your rates to combat inflation. Powell’s comments suggest that the Fed will focus primarily on inflation.
Powell’s remarks come two days after Trump overturned the global economy, spurred retaliatory moves by China, and announced cleaning fees that sent out stock prices in the US and overseas.
The weak growth and rising prices are a difficult combination for the Fed. Central banks typically drive the economy by reducing key interest rates to lower borrowing costs when growth is slow.
“The Fed is in a tough place where accelerated inflation is set and the economy is ready to slow down,” said Kathy Boss Jansick, chief economist across the country.
Some positive news came on Friday when the government reported jobs accelerated in March and added 228,000 jobs, but the unemployment rate went from 4.1% to up to 4.2%.
However, these figures measure employment in mid-March before the scope of the job becomes clear. Tariffs have increased uncertainty about how the economy will operate in the coming months, which could limit the willingness of companies to invest and hire.
Released on April 4, 2025
