Federal Reserve chair Jay Powell has warned that Donald Trump’s tariffs will stoke “higher inflation and slower growth” as the president’s plans for steep levies on the US’s trading partners shake global financial markets.
“It is now becoming clear that the tariff increases will be significantly larger than expected,” Powell said in prepared remarks to a conference in Virginia on Friday. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
He also highlighted that risks to unemployment, which has remained subdued in recent months, were rising.
Powell’s remarks come after Trump’s announcement on Wednesday of a universal 10 per cent tariff and much bigger duties on many key trading partners has sent markets reeling. Wall Street’s S&P 500 has sustained two days of heavy selling, leaving the blue-chip index on track for its worst week since the pandemic shut large swaths of the economy in 2020.
Trump, prior to Powell’s remarks, said on his Truth Social platform: “This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates.”
Powell stressed that “uncertainty” was high in terms of “what will be tariffed, at what level and for what duration, and the extent of retaliation from our trading partners”.
He said in a later press conference: “It feels like we don’t need to be in a hurry. It feels like we have time,” signalling that the central bank is minded to keep its main interest rate at its current range between 4.25 per cent and 4.5 per cent until there is more clarity about the fallout.
Powell added: “Inflation is going to be moving up and growth is going to be slowing but to me it is not clear at this time what the appropriate path for monetary policy will be.”
He also noted that “while tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent”.
