The recent tariffs announced by President Trump are likely to generate a temporary rise in inflation, and it is possible that effect could be persistent, Federal Reserve Chairman Jerome Powell said today.
During a speech in Virginia, Powell noted that he had previously said it would be difficult to assess the economic effects of higher tariffs until there was greater certainty about the details of any policy. The Trump administration this week unveiled many of those details. “While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” Powell said.
“The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” he said. “The size and duration of these effects remain uncertain. 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. Avoiding that outcome would depend on keeping longer-term inflation expectations well anchored, on the size of the effects, and on how long it takes for them to pass through fully to prices.”
The Federal Open Market Committee has held the target range for the federal funds rate at 4.25%-4.5% for the past several months, which followed a series of decreases. Powell said the FOMC is well-positioned to wait for greater clarity before considering any adjustments to its policy stance. “It is too soon to say what will be the appropriate path for monetary policy,” he added.
