Federal Reserve Chair Jerome Powell has echoed the growing concerns surrounding the Trump Liberation Day tariffs, which were unveiled by President Donald Trump on Wednesday. Speaking at an economic reporting conference in Virginia, Powell noted that the sweeping trade restrictions could lead to more persistent inflation and a noticeable slowdown in economic growth.
Although the announcement clarified some of the policy uncertainty that had kept the Fed cautious in recent months, Powell emphasized that there’s still too much unknown to change course.
“We’re seeing that the scope of these tariffs is much broader than expected, and that will likely be the case for their impact as well — including elevated inflation and softer economic performance,” Powell said.
He added, “We don’t yet know how long these effects will last. While a temporary inflation spike is expected, there’s also a risk they linger longer than anticipated.”
Trump Liberation Day tariffs may spark inflation
Economic forecasters broadly agree that the Trump Liberation Day tariffs are expected to increase the cost of goods, raising inflation and potentially triggering a slowdown in consumer spending and investment. This, in turn, could heighten the chances of a recession.
For the Federal Reserve, the challenge lies in managing two conflicting outcomes: controlling inflation while supporting the job market. The central bank’s main lever — interest rates — can typically only target one issue at a time. If inflation spikes while employment weakens, the Fed could face a difficult balancing act.
At present, officials have opted to hold interest rates steady, choosing patience over a hasty policy shift.
Trump Liberation Day tariffs put Fed in tough spot
Powell noted that the Fed’s current stance is to wait and monitor incoming data before making any moves. The depth and duration of the Trump Liberation Day tariffs’ effects remain a critical unknown.
“The tariffs turned out to be more substantial than almost all projections,” Powell observed. “Where this all leads is still uncertain, and we’ll need to let that unfold.”
Until there’s a clearer picture of whether inflation or a weakening labor market becomes the more pressing issue, the Federal Reserve is expected to remain in “watch and wait” mode.
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Source: www.investopedia.com
