Tariffs will probably worsen inflation, Federal Reserve Chairman Jerome Powell said Wednesday, echoing widespread warnings about the impact of President Donald Trump’s trade policies, and crucially indicating tariff-related price increases may complicate the Fed from pursuing further interest rate cuts.
Federal Reserve Chairman Jerome Powell delivers remarks at a news conference following the FOMC's ... More
“Tariffs are highly likely to generate at least a temporary rise in inflation,” Powell said in prepared remarks at the the Economic Club of Chicago.
That would put the Fed in the “challenging scenario in which our dual-mandate goals are in tension,” nodding to the yoyo the Fed operates between in ensuring stable prices and a stable labor market, which would likely face vulnerability if the U.S. enters an economic downturn amid tariff-based uncertainty.
Powell signaled the central bank is prepared to take a wait-and-see approach on pursuing the interest rate cuts yearned for by Trump and many others, explaining: “For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.”
“Our role is to make sure this will be a one-time increase in prices and not something that turns into an ongoing inflation process,” Powell said in a moderated discussion Wednesday.
Stock market losses accelerated after Powell struck a cautious tone. The Dow Jones Industrial Average dropped 710 points, or 1.8%, on the day by mid afternoon, while the S&P 500 fell 2.5% and the tech-heavy Nasdaq declined 3.6%. About half of all three indexes’ daily declines followed Powell’s afternoon speech. “Markets are struggling with a lot of volatility,” said Powell.
This is a breaking news story and will be updated.