Key Points

  • Federal Reserve Chair Jerome Powell predicted on Friday that the sweeping tariffs imposed by the Trump administration will push up inflation, drag down growth, and cause greater disruption to the economy than initially expected.
  • "It is already clear that the tariff increases will be significantly larger than expected," Powell said in his remarks. "Their economic effects will likely be similar, including higher inflation and slower growth."
  • Powell said the Fed intends to keep monetary policy unchanged until the effects of changes in trade, tax, regulatory, and immigration policies become clearer. "We don't need to be in a hurry," he said in response to questions. "It is not yet clear what the appropriate path for monetary policy will be. We need to wait for developments before we can begin to make those adjustments."

In-Depth Analysis

Powell said that despite the uncertain growth outlook, a recent series of economic data has shown signs of strength. "Although uncertainty is high and downside risks have increased, the economy remains in good shape," he said. "The latest data show solid growth, a balanced labor market, and inflation closer to but still above our 2% target."

In fact, U.S. employers added 228,000 jobs last month, beating expectations; data released by the Labor Department just hours before Powell's speech showed the unemployment rate rose only 0.1 percentage point to 4.2%. Although Powell called the report "still showing a solid economy," he noted that the Labor Department collected the employment data before mid-March, weeks before the Trump administration announced broad import tariffs.

Powell highlighted the risk that if growth slows, unemployment rises, and inflation heats up, the Fed could face "tension" between its congressionally mandated dual mandate—ensuring price stability and achieving maximum employment. "Rising unemployment would call for a faster pace of the economy, while high inflation would call for a slower pace," Powell said. Faced with such a dilemma, policymakers will assess how far inflation and employment deviate from targets and how long it might take to correct those deviations. "We weigh these factors and then decide what to do," he said. "This is a difficult situation."

Just minutes before Powell warned in his speech that planned import tariffs would intensify price pressures, President Donald Trump urged the Fed chair to cut the federal funds rate. "This would be a perfect time for Fed Chair Jerome Powell to cut interest rates," Trump wrote on Truth Social. "He is always 'late,' but now he can quickly change his image." The president added: "Cut rates, Jerome, and stop playing politics!"

Powell reiterated his stance that he avoids reacting to political figures' comments to protect the Fed from political interference. "We have the great asset of monetary policy independence, which is crucial to our ability to fulfill our duties," he said, adding that the Fed will focus solely on its dual mandate. "To maintain that independence, we cannot yield to the temptation to engage in matters outside our remit, and trade policy is one of them."

Trump announced on Wednesday a 10% baseline tariff on all imports and reciprocal tariffs of up to 34% on China. This U.S. shift away from decades of free-trade policy—and an apparent end to the era of globalization—triggered two consecutive days of stock market plunges, and several private-sector economists downgraded their growth forecasts. JPMorgan raised its U.S. recession probability from 40% to 60% on Thursday. On Friday, the Nasdaq, S&P 500, and Dow Jones Industrial Average all fell at least 5.5%.