“High inflation could be prolonged” - Fed chief warns of effect of Trump tariffs
Inflation is likely to rise due to President Donald Trump's sweeping tariffs and could remain high, Federal Reserve Chairman Jerome Powell said.
“We face a very uncertain outlook with heightened risks, both for higher unemployment and for higher inflation,” he said. “While tariffs are expected to generate at least a temporary increase in inflation, it is also possible that the effects will be more lasting.”
Powell's latest comments come just days after the Trump administration unveiled the sharpest tariff escalation ever in the U.S., based on data dating back 200 years, Fitch Ratings said, exceeding tariffs imposed under the 1930 Smoot-Hawley Act. A 10% tax on all U.S. imports will take effect on Saturday, with higher duties scheduled for April 9.
Trump's tariffs were worse than expected, sparking a global stock market sell-off this week. Economists at JPMorgan now see a 60% chance of a global recession if the tariffs remain in place. Several forecasters expect consumer prices, especially for cars, to rise this year.
Trump’s risky gamble to correct trade imbalances and bring manufacturing back to the U.S. could send the economy into “stagflation,” a toxic combination of stagnation and rising unemployment, along with accelerating inflation. The Fed will have to handle this situation as it did in the 1970s.
Shortly before Powell's speech, Trump in a post on his social media platform called on the Fed to lower borrowing costs, accusing the central bank leader of playing political games.
"This would be a perfect time for Fed Chairman Jerome Powell to lower interest rates," Trump wrote.
Fed officials are holding off on cutting interest rates, waiting for inflation to slow further and to see how Trump's major policy changes play out in economic data. They still expect to cut rates at some point this year, according to the latest economic projections released last month.
The Fed cut interest rates three times last year as inflation slowed. But that progress stalled toward the end of the year, weakening the chances of further cuts. The Federal Reserve kept borrowing costs steady last month.
America's labor market also remains solid, according to new government data, meaning there is no urgent need for the Fed to provide relief to the economy through additional cuts.
But the tariffs recently approved by Trump, if they are not rolled back, promise to have far-reaching effects on the U.S. economy. If those effects are higher inflation and rising unemployment, Fed officials will have to make some very difficult choices. The central bank is tasked by Congress to maximize employment and stabilize prices.
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