Federal Reserve Chairman Jerome Powell warned Wednesday that central banks could face a “challenging scenario” in which central banks manage the speed of the economy brought about by accelerated inflation and the impact of President Trump’s tariffs.
In a written statement at a Chicago economic club, Powell repeatedly said that the Trump administration’s tariffs were “significantly greater than expected.”
“The same is likely to apply to economic impacts, including higher inflation and slower growth,” he added.
Still, Powell said they can wait to see how the Trump administration’s tariffs and other economic policies unfold before the Federal Reserve maintains patients and changes to interest rates. Since Trump announced, rapid volatility in financial markets Sweeping Tax for April 2ndwhich led to speculation about whether the Fed would soon cut key interest rates or take other steps to calm investors, just to put most of them on hold in a week.
“For the time being, we are waiting quite well to wait more clearly about the impact of policy changes in areas such as immigration, taxation, regulation, tariffs and more,” Powell said.
Powell said inflation is likely to be temporary, but in minutes of last month’s meeting, “it could be more sustainable,” reflecting concerns raised by the majority of the Fed’s 19-person interest rate setting committee.
Trump’s tariffs have lowered US growth expectations and predicted higher inflation this year. Because tariffs are taxes paid by importers like Walmart, they usually pass additional costs to consumers in the form of higher prices.
“While tariffs can lead to higher prices, easing consumer sentiment and business optimism probably means growth slower,” said Scott Helfstein, Head of Investment Strategy at Global X. “This will make economic forecasting even more difficult, and the Fed is likely to expand the band’s growth and fees, along with risks that include risks in both price stability and full employment.”
However, a portion of the Fed’s interest rate setting committee has emerged. On Monday, Governor Christopher Waller said he expected even a significant increase in tariffs to be temporary, even if it existed for several years. At the same time, he also expects such a great duty to strain the economy and even threaten the recession.
Even if inflation rises, if the economy slows sharply, Waller said he “supports faster and greater cuts than I had previously thought.”
However, other Fed officials, including Neil Kashkari, president of the Fed’s Minneapolis branch, have said they are focusing more on fighting the impact of increased tariffs on inflation, suggesting that they are unlikely to support interest rate cuts anytime soon.
For now, the latest reports suggest that the economy is in a solid form. Employment was solid and inflation cooled in March. However, the measurement of consumer and business trust has plummeted, raising concerns among economists that spending and business investment could weaken.
