U.S. Federal Reserve Chair Jerome Powell speaks at a press conference, following a two-day meeting of the Federal Open Market Committee on interest rate policy, in Washington, D.C., U.S., March 19, 2025. REUTERS/Nathan Howard/File Photo
Fed Chair Powell Warns of Economic Risks from New Tariffs Amid Market Turmoil
Arlington, Virginia – Federal Reserve Chair Jerome Powell cautioned on Friday that President Donald Trump’s newly announced tariffs are “larger than expected,” with the resulting economic impact likely to include both heightened inflation and slower growth. However, Powell indicated it remains premature to determine the Federal Reserve’s appropriate policy response.
Elevated Risks and Policy Uncertainty
“We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation,” Powell stated during a business journalism conference. He noted that the economic climate threatens to undermine both of the Fed’s dual mandates: maintaining 2% inflation and achieving maximum employment.
Powell’s remarks coincided with sharp declines in global equity markets, with major U.S. indexes falling approximately 10% since Trump’s tariff announcement earlier in the week. Despite investor hopes for reassurance or policy accommodation, Powell did not address the market selloff directly, instead acknowledging the same uncertainty that has unsettled investors and corporate leaders alike.
Markets React Sharply
The S&P 500 fell nearly 6%, while the Dow Jones Industrial Average declined by 5.5%, and the Nasdaq dropped by 5%, culminating in the worst two-day performance since March 2020 at the height of the COVID-19 pandemic.
Powell’s cautious tone offered little comfort to markets, which had anticipated potential rate cuts in response to the economic headwinds. President Trump publicly advocated for such cuts, calling the timing “perfect,” but Powell refrained from signaling any immediate policy shift.
Inflation Concerns vs. Economic Slowdown
Nationwide Chief Economist Kathy Bostjancic interpreted Powell’s remarks as reinforcing expectations that the Fed will delay rate reductions until the fourth quarter, citing accelerating inflation. “The Fed is not poised to rush in and cut interest rates anytime soon,” she said.
Powell emphasized that while tariffs are likely to produce at least a temporary rise in inflation, the potential exists for more persistent impacts. “Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” he said.
Tariffs and the Fed’s Role
The Fed Chair reiterated that the central bank does not opine on presidential policy decisions but must assess their implications for economic conditions. Just weeks ago, policymakers had regarded the U.S. economy as being in a “sweet spot” with falling inflation and low unemployment.
However, Powell acknowledged the unpredictability of current developments. “The tariffs are higher than anticipated, higher than almost all forecasters predicted,” he noted. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
Monitoring Data Amid Conflicting Signals
Powell highlighted the contrast between “hard data,” such as strong job growth and low unemployment, and “soft data” from surveys and business contacts indicating an impending slowdown. “We are closely watching this tension,” he said. “As the new policies and their likely economic effects become clearer, we will have a better sense of their implications.”
Until more clarity emerges, Powell said the Fed is “well positioned to wait” before considering any policy adjustments, reiterating that it is “too soon to say what will be the appropriate path for monetary policy.”
Global Retaliation Adds Pressure
The risks facing the U.S. economy are compounded by retaliatory measures from key trading partners. China has responded with 34% tariffs on all U.S. goods, restrictions on critical mineral exports, and new limitations on U.S. poultry imports—measures with potential political implications for the Trump administration’s agricultural base.
Despite mounting concerns, U.S. officials have thus far minimized the market losses as necessary short-term costs for long-term gains in domestic manufacturing and trade.
Outlook for Monetary Policy
Federal Reserve officials continue to weigh the competing pressures of slower economic growth and rising prices. Investors now anticipate four quarter-point interest rate cuts by the end of the year, up from three before the tariff announcement. Trump’s policies could raise average import taxes to as much as 27%, compared to approximately 2.5% at the close of the Biden administration.
The Fed’s path forward remains uncertain, as it navigates an increasingly complex economic environment shaped by global tensions and shifting trade dynamics.
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