Fed Chair Jerome Powell Warns that Trump Tariffs May Cause High Inflation

Chair of the Federal Reserve Jerome Powell warned that Americans could soon see an uptick in inflation and unemployment following President Donald Trump’s “Liberation Day” tariffs, stifling economic growth.

At a conference held by the Society for Advancing Business Editing and Writing, Powell said that the economy is “still in a good place,” but Trump’s tariffs may cause more “persistent” effects, such as “elevated” rates of unemployment.

“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” he said. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”

He said it is the Fed’s “obligation” to make sure a “one-time increase in the price level does not become an ongoing inflation problem,” warning that inflation could spike “in the coming quarters.”

The Fed is meant to keep inflation low while also maintaining a healthy labor market, two goals which could be “difficult” to achieve given the looming risk of a combined rise in inflation and unemployment, said Powell.

“If we find ourselves in that situation, we look at how far each of the two variables is from its goal, and we ask ourselves, ‘How long would it take to get back?’ And we weigh those things and make a decision about what to do,” Powell said.

“There’s no question that’s a difficult situation,” he added.

Prior to his speech, Trump called out Powell, who he nominated to the position of Fed chair back in 2017, telling him in a Truth Social post to “stop playing politics” and to “cut Interest Rates.”

“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly,” the president wrote. “Energy prices are down, Interest Rates are down, Inflation is down, even Eggs are down 69%, and Jobs are UP, all within two months – A BIG WIN for America. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”

Yet Powell emphasized in his speech Friday that the Fed tries “to stay as far as we can from the political process,” saying how people “expect us to tell the truth, and that’s what we’re going to do.”

Powell’s speech comes after Trump’s “Liberation Day” tariffs went into effect Wednesday and the subsequent Wall Street crash, the Dow Jones Industrial Average dropping by more than 1,600 points Thursday.

The market continued to tumble on Friday, after China announced a retaliatory tariff of 34 percent on all U.S. goods, which is set to go into effect April 10.

As a result, the Dow Jones has dropped by more than 1,700 points, while the S&P 500 nosedived by 4.8 percent after its 4.84 percent drop Thursday.

Since the pandemic, the Fed had been attempting to bring inflation down to its 2 percent target without causing a recession, a goal they said seemed feasible merely a few months ago. Now, it’s not as clear.

“If uncertainty persists or worsens, economic activity may be constrained,” Fed Vice Chair Philip Jefferson said Thursday in Atlanta.

Powell said that it was “too soon to say what will be the appropriate path for monetary policy,” and all that’s left to do for now is to take a “step back” and see how things play out.

“We’ve taken a step back and we’re watching to see what the policies turn out to be and the ways in which they will affect the economy, and then we’ll be able to act,” he said.

He also made sure to insist that the central bank was “well positioned to deal with the risks and uncertainties we face as we gain a better understanding of the policy changes and their likely effects on the economy.”