Federal Reserve chair Jerome Powell has warned the central bank will await “greater clarity” before further cutting interest rates in the wake of US president Donald Trump’s sweeping tariffs.
Speaking at the Economic Club of Chicago on Wednesday, Powell said Trump’s tariffs are highly likely to cause at least a temporary rise in inflation while simultaneously slowing economic growth.
This creates a difficult dilemma for the Federal Reserve, as it must balance its dual mandate of promoting maximum employment and maintaining price stability.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Powell said in prepared remarks.
“If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.”
He cautioned that the inflationary effects of tariffs could be more persistent than initially expected, depending on their magnitude, how long they take to fully pass through to prices, and the anchoring of long-term inflation expectations.
Powell said that the Fed will maintain its current policy stance until there is clearer evidence of how the economy responds to tariffs.
“As we gain a better understanding of the policy changes, we will have a better sense of the implications for the economy, and hence for monetary policy,” he said. “We continue to analyze the incoming data, the evolving outlook, and the balance of risks.”
US stocks reacted negatively to Powell’s comments, with the Nasdaq shedding 3.9% at 16,162 points, the S&P 500 down 2.6% at 5,253 points, and the Dow Jones down 1.8% at 39,638 points.