Tariff Surge Threatens Inflation, Economic Growth: Powell

• The Fed Chair Jerome Powell stated that the latest tariff hike could boost inflation.
• Due to the tariffs, the US stocks and bonds rallied as investors feared losses.
• Chicago and Cleveland’s Fed presidents echoed Powell’s concerns on economic risks.

The Federal Reserve Chair Jerome Powell reignited the discussion over President Donald Trump’s tariffs, drawing attention that the latest hike could boost inflation, stunting economic growth. Speaking at the Economic Club of Chicago, Jerome Powell cautioned that the tariff hikes could bring more distress to the U.S. economy. His remarks intensified the debate over the Trump administration’s trade strategy. He said, 

The level of tariff increases announced so far is significantly larger than anticipated, and the same is likely to be true of the economic effects, which will include higher inflation and slower growth. We may find ourselves in a challenging scenario in which our dual-mandate goals are in tension.

The US economy is already showing signs of strain, with the Dow Jones Average down by 700 points or 1.7%. The S&P 500 fell by 2.5%, while the Nasdaq Composite slid by 3.5%. However, the core Personal Consumption Expenditures (PCE) rose by 2.6% in March, which was above the Fed’s 2% target.  

Earlier this month, following the tariff announcement, Trump urged the Fed to cut the key benchmark interest rate. However, with the federal funds rate holding steady at 4.25% to 4.5%, Powell signaled no immediate policy change ahead of the May 6 – 7 FOMC meeting. He said the FED is well-positioned to wait for greater clarity. Further, Powell expressed the Fed’s independence on Trump’s statement, stating that the institution will continue to do its job without being influenced by external factors. 

Related: Trump’s Tariffs Fuel Market Drop: Prices Rise, Exports Fall

According to economists, if the massive reciprocal tariffs that went into effect on April 9 are put back in place, the risk of stagflation could rise sharply. Powell’s concerns were echoed by other officials, like Chicago Fed President Austan Goolsbee, who said Trump’s tariffs are putting the central bank in a difficult position as it balances inflation control with economic growth. Further, Cleveland Fed President Beth Hammack remarked that monetary policies can be strengthened to manage the risks. Overall, Trump’s tariffs are more likely to steer the economy toward slower growth, rising unemployment, and higher inflation.

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