Jerome Powell: Tariffs May Slow Economy, Spike Inflation
Federal Reserve Chair Jerome Powell warns Trump's tariffs could slow U.S. economy and drive inflation , posing challenges for monetary policy.
In early April 2025, Federal Reserve Chair Jerome Powell emerged as a key figure in economic discussions, addressing the potential fallout from President Donald Trump's newly imposed tariffs. Speaking at various conferences, Powell highlighted the risks these trade policies pose to the U.S. economy, sparking widespread debate among policymakers, economists, and markets.
As the head of the Federal Reserve since 2018, Jerome Powell has navigated the U.S. through economic turbulence, from the COVID-19 pandemic to post-pandemic inflation surges. His leadership focuses on maintaining stable prices and full employment, balancing interest rate decisions to support growth while keeping inflation near the Fed’s 2% target. In March 2025, Powell emphasized the economy’s relative strength but noted emerging challenges, particularly from trade policies, during a Federal Open Market Committee press conference.
Tariffs Threaten Economic Slowdown
On April 4, 2025, Powell spoke at an event hosted by the Society for Advancing Business Editing and Writing in Arlington, Virginia, warning that Trump’s tariffs, described as significantly larger than expected, could dampen economic growth. He pointed to a rush of imports to avoid tariffs, which may distort GDP estimates, and souring consumer and business sentiment as early signs of strain. Economists, including those at JPMorgan Chase, have raised recession probabilities, citing tariffs potential to reduce demand and disrupt global supply chains.
Inflation Risks on the Horizon
Powell also cautioned that tariffs could drive inflation higher, a concern echoed in his April 16 speech at the Economic Club of Chicago. He noted that short-term inflation expectations have risen significantly due to tariffs, which act as a tax on imports, potentially increasing consumer prices. While Powell initially viewed tariff-driven inflation as temporary, he later acknowledged it could persist, complicating the Fed’s efforts to return inflation to 2%. Surveys indicate consumers expect prices to rise 6.7% in the coming year, a multi-decade high, adding pressure on the Fed to act cautiously.
Navigating a Policy Dilemma
The Federal Reserve faces a tough choice: lower interest rates to counter slower growth or hold rates steady to tame inflation. Powell has resisted calls from Trump to cut rates immediately, emphasizing the need for clarity on tariffs’ economic impact. Markets anticipate rate cuts starting in June 2025, with three or four quarter-point reductions by year-end, according to the CME Group’s FedWatch gauge. However, Powell stressed that premature rate cuts could reignite inflation, a lesson learned from the Fed’s response to post-COVID price surges.
As tariffs reshape global trade, Powell’s warnings underscore the delicate balance the Fed must strike. The central bank’s next meeting in May 2025 will be critical, with policymakers likely to assess incoming data on inflation, employment, and growth. For now, Powell remains focused on anchoring long-term inflation expectations while monitoring signs of economic weakness. The coming months will test the Fed’s ability to steer the U.S. economy through tariff-induced uncertainty, with implications for businesses, consumers, and global markets.
