Federal Reserve Chair Jerome Powell issued a stark warning on Friday, stating that the economic impact of recently announced tariffs would likely be larger than expected, fueling inflationary pressures and slowing economic growth.
“Higher tariffs will be working their way through our economy and are likely to raise inflation in incoming quarters,” Powell said. He cautioned that the resulting price hikes could lead to ongoing inflation, rather than a temporary spike, which could complicate the central bank’s efforts to manage price stability.
The Fed chair also noted that while the Federal Reserve does not maintain a probability forecast of a recession, external forecasts have indicated rising risks. “We face risks for higher unemployment and higher inflation—that’s difficult for a central bank,” Powell stated, hinting at the growing concerns over stagflation, a combination of high inflation and slowing growth.
Trump: cut interest rates now
His remarks came just after President Donald Trump on Friday morning called for an immediate interest rate cut to counteract the economic impact.
“Cut interest rates, Jerome, and stop playing politics!” Trump wrote on social media just minutes after Powell’s comments. The president, who has frequently criticized Powell for acting too slowly on rate adjustments, added, “It would be a PERFECT time for Powell to cut interest rates.”
Despite Trump’s demands, Powell signaled that the Fed is not prepared to make an immediate policy shift. “It is too soon to determine the appropriate policy path,” Powell said, emphasizing that the central bank remains focused on ensuring inflation does not become entrenched.
The tariff debate has reignited tensions between the White House and the Federal Reserve, with the president and the Fed chair publicly at odds over how to handle the economic fallout. Powell’s comments, in which he admitted that the effects of tariffs on inflation and growth could be “significantly larger than expected,” have raised fresh concerns among investors and economists about the long-term consequences of trade policy on the US economy.