With the tariffs announced by President Trump much higher than anticipated, the same is probably true of their economic effects, Federal Reserve Chairman Jerome Powell said today. During a speech in Chicago, Powell said the tariffs were likely to bring about higher inflation and slower growth.
“Tariffs are highly likely to generate at least a temporary rise in inflation. The inflationary effects could also be more persistent.” Powell said. “Avoiding that outcome will depend on the size of the effects, on how long it takes for them to pass through fully to prices, and, ultimately, on keeping longer-term inflation expectations well anchored.”
The Fed’s 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, Powell added.
“As we act to meet that obligation, we will balance our maximum-employment and price-stability mandates, keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans,” he said. “We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension. If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.”
