We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation,” he said at an event just outside Washington, DC. “While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent.”
Powell’s latest comments, his most vivid yet on the subject, come just days after the Trump administration unveiled the sharpest ever escalation in US tariffs on data going back 200 years, Fitch Ratings told CNN — even steeper than the expansive tariffs deployed under the Smoot-Hawley Act of 1930. A 10% tariff on all US imports will go into effect on Saturday, with even higher tariffs slated for April 9.
Trump’s tariffs were worse than feared, triggering a global stock-market sell-off this week. Economists at JPMorgan now see global recession odds at 60% if the tariffs are kept in place. Various forecasters are projecting consumer prices, especially for cars, to ratchet higher this year.
Trump’s risky bet to rectify trade imbalances and bring back production to the US could send the economy barreling toward “stagflation,” a toxic combination of stagnant economic growth and rising unemployment coupled with accelerating inflation. The Fed would have to tackle that two-headed beast head-on, just like it did in the 1970s.
“The Fed is in a tough spot with inflation set to accelerate and the economy poised to slow,” Kathy Bostjancic, chief economist at Nationwide, said in an analyst note Friday.
Shortly before Powell’s speech, Trump in a post on his social media platform called on the Fed to lower borrowing costs, accusing the central bank’s leader of playing politics.
“This would be a perfect time for Fed Chairman Jerome Powell to cut interest rates,” Trump wrote.
Fed officials have adopted a holding pattern on interest rates, waiting for inflation to slow further and to see how Trump’s major policy shifts show up in economic data. They still expect to cut rates at some point this year, according to their latest economic projections released last month.
The Fed cut rates three times last year on signs that inflation was slowing. But that progress stalled out around the turn of the year, which weakened the case for further rate cuts and ultimately prompted the Fed to stand pat in January. The Fed continued to hold borrowing costs steady last month.
America’s job market also remains solid, according to fresh government data out Friday, meaning there isn’t any urgent need for the Fed to provide the economy with relief through additional cuts.
China imposes 34% reciprocal tariffs on imports of US goods in retaliation for Trump’s trade war
But the central bank is uncomfortably on hold. Trump’s recently enacted tariffs, if they’re kept in place, promise to have wide-ranging effects on the US economy. If those effects are higher inflation and rising unemployment, Fed officials will have to make some very tough choices. The central bank is tasked by Congress to both maximize employment and stabilize prices.
In such a scenario, Powell said officials will “look at how far each of the two variables is from its goal” and how long it would take to fix either one.
“There’s no question that’s a difficult situation,” he said.
So far, Trump has already put in place duties on metals and cars and doubled tariffs on China to 20%, on top of ones put in place during Trump’s first term, which will be lifted even higher to well above 54%. China has already retaliated to Trump’s tariffs.
Sentiment surveys have already captured America’s unease with Trump’s sweeping economic agenda: Consumer confidence in March plunged to its lowest level since January 2021 and the small-business uncertainty about economy spiked in February to its second-highest on data going back to 1973.
“If uncertainty persists or worsens, economic activity may be constrained,” Fed Vice Chair Philip Jefferson said Thursday at an event in Atlanta.
Powell said the high level of uncertainty bedeviling America’s decision makers should be “much lower” next year, after all the dust has settled from the Trump administration’s massive policy shifts.
“The actual effects of the policies should then be pretty manifested and clear,” he said.
Powell said the Fed’s best move amid Trump’s chaos is to keep rates on hold for longer. Fed officials convene again to set interest rate policy on May 6-7.
“We’re going to need to wait and see how this plays out,” Powell said.
https://www.cnn.com/2025/04/04/economy/jerome-powell-fed-tariffs-jobs/index.html
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