Federal Reserve Chair Jerome Powell has raised alarm over President Donald Trump’s sweeping new tariffs, warning that the economic impact could be more severe than anticipated — with inflation rising and growth slowing amid growing uncertainty.
Speaking at a conference of business journalists in Arlington, Virginia, Powell cautioned that the latest import taxes introduced by the Trump administration are “larger than expected” and could unleash a complex set of challenges for the US economy and the central bank.
The fresh tariffs — announced on Wednesday and targeting a wide array of global trading partners — have already roiled financial markets, erasing around 10% from major US stock indexes by Friday.
Powell said:
We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation.
This, he added, directly undermines the Fed’s dual mandate of price stability and maximum employment.
While Powell refrained from commenting directly on the sharp equity sell-off, his speech acknowledged the difficult choices ahead for monetary policymakers.
The Federal Reserve, he said, will remain focused on anchoring long-term inflation expectations while assessing the fallout from the tariffs.
Although initial impacts from tariffs typically lead to temporary price hikes, Powell warned the effects this time may be more persistent.
“Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem,” he said.
The Fed, for now, will hold off on immediate action and continue monitoring incoming data.
“It is too soon to say what will be the appropriate path for monetary policy,” Powell stated, noting that the Fed is well-positioned to wait for greater clarity.
A key challenge for the central bank is reconciling strong “hard” data — like March’s 228,000 new jobs and 4.2% unemployment rate — with “soft” data such as business sentiment and surveys, which signal an economic slowdown ahead.
This divergence, Powell noted, could widen as the economic consequences of trade tensions unfold.
Markets have reacted sharply.
Investors now anticipate four quarter-point rate cuts from the Fed this year, up from three before Trump’s tariff move.
Some analysts estimate that average US import taxes could rise to as high as 27%, a significant increase from around 2.5% under the Biden administration.
The broader trade fallout also includes retaliatory measures from China. Beijing has imposed 34% tariffs on US goods, restricted mineral exports vital to the tech industry, and limited imports of American poultry — signaling rising geopolitical and economic tensions.
Other Fed officials echoed Powell’s concerns. Fed Governor Lisa Cook noted that inflation expectations had already started rising before Trump’s announcement.
Vice Chair Philip Jefferson warned that the uncertainty could hurt household and business spending, while Fed Governor Adriana Kugler added that early signs of stagflation — the toxic mix of stagnant growth and inflation — may be emerging.
As the central bank navigates this volatile environment, Powell made clear that taming inflation and protecting economic stability remain top priorities. But with tariff-induced headwinds mounting, the Fed’s task is becoming increasingly delicate.
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