U.S. Federal Reserve Chair Jerome Powell departs after speaking during a Society for Advancing Business Editing and Writing (SABEW) Annual Conference on April 4 in Arlington, Virginia.Anna Moneymaker/Getty Images
U.S. Federal Reserve Chair Jerome Powell, who is under increasing pressure from President Donald Trump to cut interest rates, said Friday the U.S government’s global tariffs were larger than expected and were likely to fuel higher and more persistent inflation while slowing economic growth.
Mr. Powell stressed that it will take time for the central bank to assess the effects of higher tariffs given the lack of details about which imports will be tariffed and for how long. The extent of retaliation from America’s key trading partners, including Canada, also remains unknown – variables that are obscuring the outlook for U.S. economy and the Fed’s monetary policy.
“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” Mr. Powell said. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
Mr. Powell’s remarks, which cap a tumultuous week marked by nosediving global equity markets, come days after Mr. Trump announced a new round of global tariffs that risk pushing the U.S. economy into a recession and inflaming inflationary pressures. Countries around the world are also bracing for economic fallout.
Less than 20 minutes before Mr. Powell began his address, Mr. Trump called on the Fed chair to cut interest rates in a social-media post. Mr. Powell, however, stressed that it is too soon for the U.S. central bank to change its course on monetary policy.
“The size and duration of these effects remain uncertain,” Mr. Powell told delegates at the spring conference for the Society for Advancing Business Editing and Writing (SABEW), an association for business journalists, in the Washington suburb of Arlington, Va.
“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 Fed is wrestling with what comes next for the U.S. economy as Mr. Trump’s fluid trade policies complicate the central bank’s dual mandate of controlling inflation while also maximizing employment. Trade shocks are hard for central bankers to address because they hurt economic activity but increase prices – forcing policy makers to choose between cutting interest rates to support the economy and holding them steady or raising them to fight inflation.
The Fed cut its benchmark federal funds rate three times in last fall – to a target range of 4.25 per cent to 4.5 per cent – but has remained on hold since then. Mr. Powell had indicated in recent appearances that the Fed was in no rush to lower interest rates further given inflation in recent months that was more stubborn than expected.
Mr. Powell said the Fed remains committed to returning inflation to an annual rate of 2 per cent, the central bank’s target, but he acknowledged the challenge of achieving multiple goals.
“In this situation you have risks for higher unemployment and higher inflation, and that’s difficult for a central bank,” Mr. Powell said.
“Our tools, interest rates, either slow down or speed up the economy over time. Unemployment would call for speeding up the economy and higher inflation would call for slowing it down … the two goals are in tension – but that’s not what we’re seeing right now.”
Mr. Powell said he was declining to comment directly on Mr. Trump’s policies, saying it would be inappropriate to do so. “For us to keep independence we cannot succumb to the temptation to want to be a player on issues that are not assigned to us. Trade policy is one of those.”
His comments – seen as more negative than his previous thoughts on the economy – came as global equity markets fell sharply for a second straight day.
The S&P 500 Index dropped 6 per cent on Friday after falling 5 per cent Thursday, with similar drops seen in the Nasdaq Composite index. Market watchers estimate U.S. stocks have lost more than US$5-trillion in value over the past two days.
Also on Friday, new data showed the U.S. economy added 228,000 jobs in March, well above the consensus forecast of 140,000. China, meanwhile, said it would impose a 34-per-cent duty on U.S. products starting April 10.
Mr. Trump announced Wednesday, on what he called “Liberation Day,” that the U.S. would impose tariffs of at least 10 per cent on imports from nearly every country in the world, with much higher rates for some countries.
In a post Friday on social-media platform Truth Social, Mr. Trump said, “This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly …CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”
While Mr. Powell highlighted economic uncertainty as the U.S. administration implements “substantial policy changes” in areas including trade, immigration, fiscal policy and regulation, he suggested this should pass with time.
“If you fast-forward to a year from now the uncertainty should be much lower … we just have to go through that process. This is just a manifestation of our election cycle,” Mr. Powell said.
The next meeting of the Federal Open Market Committee is scheduled to take place on May 6 and 7. First-quarter GDP data for the United States will be released later this month.
Financial markets expect the Fed to remain on hold at its next meeting in May before cutting interest rates by a quarter-percentage-point in June, according to LSEG data. Markers are pricing in three quarter-point cuts before the end of the year.
Asked by a journalist Friday about his “job security,” Mr. Powell chuckled, then said “I fully intend to serve all of my term.” Mr. Powell’s term as chair expires in May, 2026.