Inflation is likely to pick up because of President Donald Trump’s sweeping tariffs, and could remain elevated, Federal Reserve Chair Jerome Powell said Friday.
“We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation,” he said at an event just outside Washington, DC. “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’s latest comments, his most vivid yet on the subject, come just days after the Trump administration unveiled the sharpest ever escalation in US tariffs on data going back 200 years, Fitch Ratings told CNN — even steeper than the expansive tariffs deployed under the Smoot-Hawley Act of 1930. A 10% tariff on all US imports will go into effect on Saturday, with even higher tariffs slated for April 9.
Trump’s tariffs were worse than feared, triggering a global stock-market sell-off this week. Economists at JPMorgan now see global recession odds at 60% if the tariffs are kept in place. Various forecasters are projecting consumer prices, especially for cars, to ratchet higher this year.
Trump’s risky bet to rectify trade imbalances and bring back production to the US could send the economy barreling toward “stagflation,” a toxic combination of stagnant economic growth and rising unemployment coupled with accelerating inflation. The Fed would have to tackle that two-headed beast head-on, just like it did in the 1970s.
“The Fed is in a tough spot with inflation set to accelerate and the economy poised to slow,” Kathy Bostjancic, chief economist at Nationwide, said in an analyst note Friday.
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’s leader of playing politics.
“This would be a perfect time for Fed Chairman Jerome Powell to cut interest rates,” Trump wrote.
Fed officials have adopted a holding pattern on interest rates, waiting for inflation to slow further and to see how Trump’s major policy shifts show up in economic data. They still expect to cut rates at some point this year, according to their latest economic projections released last month.
The Fed cut rates three times last year on signs that inflation was slowing. But that progress stalled out around the turn of the year, which weakened the case for further rate cuts and ultimately prompted the Fed to stand pat in January. The Fed continued to hold borrowing costs steady last month.
