Federal Reserve Chair Jerome Powell has issued a sharp warning that new tariffs introduced by President Donald Trump could spark a fresh wave of inflation.
Speaking to the Economic Club of Chicago on Wednesday, Powell noted that the import taxes rolled out earlier this month are more significant than anticipated — even in the Fed’s most aggressive scenarios.
“The tariffs are larger than forecasters had expected, certainly larger than we expected, even in our upside case,” Powell said.
This Jerome Powell Inflation Warning sheds light on how the central bank may respond to the shifting landscape of international trade tensions. According to Powell, these trade policies might disrupt the Fed’s dual mission — controlling inflation and supporting employment.
Although financial markets may anticipate rate cuts in response to economic turbulence, Powell hinted that the Fed isn’t ready to act just yet.
Jerome Powell Inflation Warning Signals Fed’s Caution
Powell reinforced recent Fed sentiments, calling the tariff situation “challenging” as it might simultaneously cool the economy while driving up prices.
The Fed’s primary lever — the federal funds rate — influences borrowing costs across loans, and it’s been kept high to fight inflation following the pandemic. Lowering rates could boost the economy, but Powell emphasized the central bank’s reluctance to ease too soon.
When asked whether rate cuts were possible if markets took a dive, Powell responded firmly: “No, with an explanation.” He added that the markets were reacting in an expected way to tariff uncertainty.
Jerome Powell Inflation Warning on Tariff-Driven Costs
Traditionally, central banks view tariffs as one-time price spikes rather than signs of ongoing inflation. But Powell suggested that logic no longer applies.
Citing the 2022 chip shortage that drove car prices—and inflation—upward, Powell warned that external shocks like tariffs could lead to sustained price hikes if not addressed early.
“Our role is to make sure that this is a one-time increase in prices and not something that turns into an ongoing inflation process,” Powell stated.
This third and final Jerome Powell Inflation Warning underscores the Fed’s firm stance: avoid repeating past inflationary cycles triggered by supply shocks, even if it means holding firm on interest rates despite economic pressure.
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Source: www.investopedia.com
