Federal Reserve Chair Jerome Powell warned that inflation could rise by at least 1 percentage point this year as new tariffs take full effect|@federalreserve|X
Federal Reserve Chair Jerome Powell warned Friday that the newly announced tariffs by President Donald Trump could lead to higher inflation and slow economic growth.
While speaking at a conference, he further said that the central bank may not cut interest rates as markets fell.
The historic tariffs unveiled earlier this week—and China’s matching 34% retaliation—triggered market selloffs and raised concerns over economic uncertainty. The S&P 500 has dropped over 13% since Trump’s election win in November, including a steep 6% fall Friday. Amid all this, before making his decision, the Fed Chair wants to see how the duties will affect the economy.
Fed may delay rate cuts
Powell warned that inflation could rise by at least 1 percentage point this year as new tariffs take full effect. Unlike in 2019, the Fed may wait to cut interest rates.
Since inflation has been elevated recently—dropping only to 2.5% in February after peaking above 7% in 2022—Powell stressed the Fed would act only after seeing clear signs of a slowdown.
Policy outlook
The central bank aims to prevent temporary tariff-driven price spikes from triggering long-term inflation. It is expected to keep its benchmark interest rate at 4.3% in the coming months, dashing investor hopes for up to five rate cuts this year. It is unlikely the Fed will lower rates at its upcoming May 6–7 meeting.
Despite Trump’s claims that inflation is falling, Powell and many economists believe the tariffs will raise consumer prices and increase economic uncertainty.
If inflation stays high and unemployment later rises, the Fed may respond with faster rate cuts—but only after signs of weakness appear.
Economists say that tariffs threaten consumer spending, corporate profits and overall economic stability.