Powell Sounds Alarm on Inflationary Tariff Impact
Federal Reserve Chair Jerome Powell delivered his starkest warning yet about President Donald Trump’s sweeping new tariffs, cautioning that they will likely trigger inflation that could persist beyond initial expectations. His comments come as markets reel from the administration’s dramatic trade policy shift and Trump publicly pressures the Fed to cut interest rates.
“We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation,” Powell said Friday at an event near Washington, D.C., according to CNN. “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.”
The Federal Reserve now finds itself in an increasingly difficult position as Trump’s tariff policies threaten to create a toxic economic scenario reminiscent of the 1970s “stagflation” – a combination of stagnant growth, rising unemployment, and accelerating inflation. Such conditions would force the central bank to make painful policy choices between its dual mandates of price stability and maximum employment.
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Historic Tariff Escalation Rattles Markets
Trump’s tariff announcement Wednesday has triggered what Fitch Ratings described to CNN as “the sharpest ever escalation in US tariffs” on data going back 200 years – even steeper than the infamous Smoot-Hawley Act of 1930. The policy imposes a baseline 10% tariff on all imports starting April 6, with higher rates for specific countries beginning April 9.
The market reaction has been severe, with global stocks experiencing significant declines. JPMorgan economists have raised their global recession probability to 60% if the tariffs remain in place. Multiple forecasters project substantial price increases for consumer goods, with automobiles expected to see particularly sharp rises.
Adding to the uncertainty, China announced retaliatory 34% tariffs on all U.S. goods, escalating fears of a spiraling trade war that could further destabilize global economic conditions.
BREAKING: Federal Reserve Chairman Jerome Powell, moments ago:
— Ed Krassenstein (@EdKrassen) April 4, 2025
“Higher tariffs will be working their way through our economy and are likely to raise inflation in incoming quarters.”
TRUMP DID THAT! pic.twitter.com/3o2redWV9b
Powell Resists Trump’s Rate Cut Demands
Hours before Powell’s speech, Trump took to his social media platform to publicly pressure the Fed chair to reduce interest rates. “This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates,” Trump wrote on Truth Social, as reported by CNBC. “He is always ‘late,’ but he could now change his image, and quickly. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”
Powell maintained his position that the Fed must remain cautious amid the current economic uncertainty. “We’re going to need to wait and see how this plays out,” he stated, suggesting the central bank’s best move is to keep rates steady for now. When asked directly about Trump’s comments, Powell responded: “I make it a practice not to respond to any elected officials’ comments, so I don’t want to be seen to be doing that. It’s just not appropriate for me.”
The central bank had previously indicated plans for interest rate cuts this year, but the inflationary impact of the new tariffs complicates this outlook significantly. “The Fed is in a tough spot with inflation set to accelerate and the economy poised to slow,” noted Kathy Bostjancic, chief economist at Nationwide, in an analysis released Friday.
Economic Sentiment Already Deteriorating
While Friday’s jobs report showed the addition of 228,000 positions – more than expected – the unemployment rate ticked up slightly to 4.2%. Market sentiment has already shifted dramatically, with traders now pricing in expectations for at least four quarter-point rate cuts this year, according to CME’s FedWatch tool – double what Fed officials projected just last month.
Consumer confidence plunged in March to its lowest level since January 2021, while small-business uncertainty about the economy spiked in February to near-record levels in data going back to 1973. Fed Vice Chair Philip Jefferson warned Thursday that “if uncertainty persists or worsens, economic activity may be constrained.”
Powell predicted that the current high level of economic uncertainty should be “much lower” by next year once the effects of the Trump administration’s policy shifts become clearer. “The actual effects of the policies should then be pretty manifested and clear,” he said.
As the Fed prepares for its next policy meeting on May 6-7, market participants will be closely watching for any signals about how the central bank plans to navigate the challenging economic crosscurrents created by these unprecedented tariff policies.
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