Investors hoping the Federal Reserve will quickly lower interest rates to rescue a wobbly economy and sinking stock market from President Donald Trump’s sweeping tariffs may be disappointed.
Noting that tariffs could both push up inflation and slow the economy, Federal Reserve Chair Jerome Powell said Friday the central bank will be especially vigilant about keeping inflation in check.
“Our obligation is to keep longer-term inflation expectations well anchored to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said in a speech before the Society for Advancing Business Editing and Writing annual conference in Arlington, Virginia.
Powell did not lay out similarly detailed concerns about an economy many forecasters believe will tip into recession because of Trump’s import levies.
“While uncertainty is high and downside risks have risen, the economy is still in a good place,” Powell said. He noted the March jobs report, released earlier Friday, showed unemployment ticked up to a still-low 4.2% last month. Employers added a nearly booming 228,000 jobs.
Still, Powell noted “the size and duration of the effects” of the tariffs “remain uncertain,” adding “it is too soon to say what will be the appropriate path for monetary policy.”
In a conversation with moderators after his speech, Powell said the tariffs are higher than anticipated but added, “We still don’t know where that comes to rest…and we’re just going to have to see things through.”
Futures markets expect the Fed to cut its key interest rate at four straight meetings from June through October, reducing the rate from a range of 4.25% to 4.5% to a range of 3.25% to 3.5%. Powell’s remarks suggest officials may be more cautious about lowering rates.
In a post on Truth Social Friday, Trump wrote, “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.”
Trumps aggressive tariffs on all imports are expected to leave the Fed torn between its two mandates – keeping both inflation and unemployment low. The Fed raises rates or keeps them high to curtail inflation and cuts rates to bolster the economy and reduce unemployment or dig the economy out of recession.
Asked which of the Fed’s missions officials will prioritize, Powell said, “If one of them is further away” from its goal than the other, “we’d focus on that one.”
In other words, the Fed could continue to keep rates high or possibly even hike them if inflation begins to soar but lower rates if the economy seems to be hurtling toward recession.
JPMorgan Chase figures a recession is now likely while other economists have significantly raised their recession odds.
Yet some forecasters also figure the tariffs will drive the Fed’s preferred inflation measure from 2.8% to 4% or higher by year’s end. It hit a 40-year high of 5.6% in 2022 because of pandemic-related supply chain shortages and a post-crisis surge in consumer demand.
While raising interest rates in 2022 and 2023 to fight the inflation spike, Powell said curtailing the price increases was the Fed’s chief mission even at the cost of a significantly weakening economy because inflation can become entrenched due to consumer and business expectation.
He since has said the central bank’s two goals are more in balance.
Trump on Wednesday announced 10% tariffs on all imports and additional double-digit fees on shipments from dozens of countries. A 25% tariff on all auto imports also took effect early Thursday and comes on top of levies on imported steel and aluminum, Chinese imports and some shipments from Canada and Mexico.
“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” Powell said Friday.
He added the Fed faces “elevated risks of both higher unemployment and higher inflation.”
Some economists have said the tariffs will result in a one-time bump to inflation that will disappear the following year. Other worry the duties could raise consumer and business inflation expectations, which themselves could increase inflation
“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,” Powell said in his speech Friday.
“Avoiding that outcome would depend on keeping longer-term inflation expectations well anchored, on the size of the effects, and on how long it takes for them to fully pass through fully to prices.”
While JPMorgan reckons the U.S. and global economies will topple into a recession this year, other economists are less dour. Research firms such as Moody’s Analytics and Pantheon Macroeconomics believe the U.S. economy will stagnate in 2025 with virtually no growth but avoid an outright slump.
Moody’s Chief Economist Mark Zandi thinks the Trump administration will provide businesses carveouts and exceptions and grant farmers subsidies that help the nation sidestep an economic skid.
(This story was updated with new information and to change a headline.)
Fed's Powell addresses Trump's tariffs, says officials' job is to contain inflation – USA Today
