Key Points

  • Federal Reserve Chairman Jerome Powell said Wednesday that tariff and other policy changes by the Trump administration could push unemployment higher and inflation up for the rest of 2025.
  • "As the economy slows, unemployment is very likely to rise, and inflation is likely to rise due to tariff pass-through—some of which will be borne by the public," Powell said during a Q&A session after his Wednesday speech. "That's a very likely scenario, probably lasting through the rest of the year," he added.
  • In his speech, Powell said the impact of tariffs announced by President Trump on inflation could prove "transitory." He said, "Avoiding that outcome will depend on the magnitude of the impact, the time it takes for these effects to fully pass through to prices, and whether long-term inflation expectations ultimately remain stably anchored."

In-Depth Analysis

Powell stressed that implemented and planned policy shifts, especially tariffs announced this month, have created exceptional economic uncertainty, weakened consumer and business confidence, pushed up short-term inflation expectations, and triggered financial market volatility.

"These are fundamental changes to long-standing U.S. policies in some cases," Powell said. He noted that Trump's tariffs exceed the import duties of the Smoot-Hawley Tariff Act of 1930, which is widely believed to have worsened the Great Depression.

"There is no precedent in modern experience for how to respond to this situation," Powell said.

According to the White House, Trump administration officials have begun negotiations with several countries that received a 90-day reprieve from high reciprocal tariffs on April 9. A 10% baseline tariff on goods from most U.S. trading partners remains in effect, as does a 145% tariff on goods imported from China.

Powell noted that Fed policymakers, mandated by Congress to ensure price stability and maximum employment, may find these two goals in conflict in the coming months.

"If that happens, we will consider how far the economy is from each goal and the different time horizons over which those gaps might close," he said.

Powell said economic data show that first-quarter growth has slowed from last year's solid pace.

"Surveys of households and businesses show a sharp decline in confidence and elevated uncertainty about the outlook, reflecting mainly concerns about trade policy," he said.

Powell also noted that many economists have downgraded growth forecasts but are not predicting a recession.

The United Nations Conference on Trade and Development said Wednesday that U.S. GDP growth could fall to 1% in 2025 from 2.8% last year, citing headwinds from trade disputes and other global conflicts. JPMorgan, meanwhile, puts the probability of a U.S. recession in 2025 at 60%.

JPMorgan Chief Global Economist Bruce Kasman said in a statement Tuesday that even with Trump's recent 90-day reprieve on many import tariffs, "the remaining measures are still sufficient to push the U.S. and China—and likely the global economy—into recession this year."

Powell said consumer spending, which accounts for about 70% of GDP growth, appeared to grow "modestly" in the first quarter. Data released Wednesday by the Commerce Department showed retail sales rose 1.4% in March as consumers rushed to buy cars, electronics, and other goods before tariffs took effect. Sales increased in 11 of the 13 categories tracked by the Census Bureau.