Inflation may rise, growth may dip, US Fed chair Jerome Powell cautions on Trump's tariffs

The Trump administration's new tariffs will likely lead to higher inflation and slower growth, US Fed Chair Jerome Powell said on Friday, adding that the Federal Reserve will focus on keeping price increases temporary.

Powell indicated that the tariffs' economic impact exceeds initial projections, likely causing temporary inflation with possible longer-term effects, AP news agency reported.

He said, "Our obligation is to ... make certain that a one-time increase in the price level does not become an ongoing inflation problem."

The Fed appears likely to maintain its current benchmark interest rate at approximately 4.3%. However, Wall Street anticipates five rate reductions this year, particularly following President Trump's Wednesday tariff announcement.
Powell acknowledged uncertainty regarding the tariffs' full economic impact, suggesting a cautious approach. During questions, he noted, "There's a lot of waiting and seeing going on, including by us. And that just seems like the right thing to do in this period of uncertainty."

On Truth Social, Trump advocated for rate cuts, citing reduced inflation and energy costs: "This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!"

Economists anticipate the tariffs could reduce economic growth, affect employment and increase prices. The Fed faces a complex decision between supporting growth and controlling inflation, with Powell's remarks suggesting inflation control as the priority.

The announcement follows Trump's recent tariff implementation, which has affected global markets and prompted Chinese retaliation. The Fed's typical responses to economic challenges involve either reducing rates to stimulate growth or maintaining higher rates to manage inflation.

Kathy Bostjancic, Nationwide's chief economist, observed: "The Fed is in a tough spot with inflation set to accelerate and the economy poised to slow."

While Powell confirmed current economic stability, he noted increasing pessimism among consumers and businesses. He acknowledged slowing progress towards the 2% inflation target, despite significant reduction from 2022 peaks.

March employment data showed 228,000 new jobs, though unemployment increased to 4.2% from 4.1%. However, these figures predate the tariff announcement, and ongoing uncertainty may affect future business investment and hiring decisions.