Fed Chair Powell Addresses Tariff Impact on Inflation and Interest Rates

In a recent address, Federal Reserve Chair Jerome Powell indicated a shift in his assessment of inflation related to President Trump's new tariffs. During a speech in Arlington, Virginia, Powell suggested that the effects of these tariffs may not be temporary, stating, "it is also possible that the effects could be more persistent" as the economy adjusts to the significantly higher trade duties. This announcement comes amid growing pressure from President Trump, who is advocating for a reduction in interest rates. Trump took to social media, asserting, "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," urging Powell to "CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!" Powell, however, emphasized the uncertainty surrounding the appropriate monetary policy path, stating, "It is too soon to say what will be the appropriate path for monetary policy." He acknowledged that the anticipated inflationary impact of the tariffs may be greater and longer-lasting than previously considered, noting, "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's ongoing assessment comes at a time when President Trump's tariff measures have surprised market participants, resulting in a significant decline in U.S. stock prices, the largest one-day drop since the start of the COVID-19 pandemic in March 2020. These developments prompted economists to adjust their forecasts, suggesting that the U.S. economy may face higher inflation alongside slower growth—or potentially enter a recession. Market traders have reacted to these evolving economic indicators by revising their expectations for interest rate cuts, now anticipating up to four reductions this year, with the first cut potentially occurring in June. On the employment front, a new report from the Bureau of Labor Statistics revealed the creation of 228,000 new jobs in March, surpassing the forecast of 140,000. While this strong job growth typically would not lead to immediate action from the Fed, some analysts believe it reinforces the Fed's wait-and-see approach for now. "This type of job report will not favor any kind of hurried cuts," noted EY economist Gregory Daco. Both Powell and other members of the Federal Reserve, including Vice Chair Philip Jefferson and Governor Lisa Cook, have reiterated the need for caution. Jefferson stated that there is "no need to be in a hurry" regarding changes to rates, while Cook pointed out that rising inflation expectations could necessitate a more restrictive stance on monetary policy. Amidst this backdrop, there appears to be growing divergence in opinions among analysts regarding the Fed's future decisions. Morgan Stanley predicts no rate cuts this year, citing potential inflationary pressures, while Evercore presents a range of possibilities from no cuts to as many as five, with a base case of two to three. In light of the rising tariff impacts, Powell acknowledged that progress toward the Fed's 2% inflation target "has slowed," with inflation remaining at 2.8% in recent readings. He emphasized that the central bank's responsibility is to ensure that a one-time price increase does not lead to persistent inflation issues. Despite previous criticisms, President Trump has recently softened his stance regarding the Fed and its leadership. Powell has made it clear that he intends to complete his term, stating, "I fully intend to serve all of my term," in reference to his position, which runs until May 2026. Read more: What Trump's tariffs mean for the economy and your wallet Additional insights: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments