President Donald Trump’s tariff policies are expected to cause slower economic growth and higher inflation, according to Federal Reserve Chairman Jerome Powell. But he also clarified that the U.S. economy remains “in a solid position.”
Speaking Wednesday at the Economic Club of Chicago, Powell said the level of tariff increases announced so far by the president is “significantly larger than anticipated.”
“The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” Powell said.
The Fed chair stated after his speech that the tariffs would likely move the economy further away from the Fed’s stated goals, which include maximum employment and stable prices, probably for the balance of the year.
Powell’s comments were believed to have helped spur Wednesday’s stock selloff on Wall Street, as the Dow Jones Industrial Average fell nearly 700 points, or 1.73%, and the S&P 500 pulled back 2.24%.
According to ABC News, the address marked Powell’s first public remarks on tariffs since the president last week announced a 90-day pause on the implementation of a new set of tax increases on imported goods that he referred to as “reciprocal tariffs.”
While Trump has paused some tariffs, he placed a 10% tariff on most imports and levied a series of tariffs on Chinese imports that reached 145%.
Powell said that the markets were functioning about as one would expect as they struggled with uncertainty and the resulting increased volatility. He said the recent policy changes have contributed to a “highly uncertain outlook.”
As the tariffs progress, the central bank could find itself in a dilemma between controlling inflation and supporting economic growth, and it may not be clear where to devote greater focus.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Powell said. “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.”
According to CNBC, the Fed chair gave no indication on where he sees interest rates heading, but he made clear he was in no rush to make a change. “For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” he said.
There is worry that because of the tariff turmoil and possibility of increasing inflation, Powell may pull back from rate cuts later this year.
The speech was similar to a talk he delivered on April 4 in Virginia, but today’s comments took on increased importance considering the Trump administration’s recent announcements of major tariff increases.
The state of the current economy, however, continues to send mixed signals. The Commerce Department announced Wednesday morning that retail sales in March increased by 1.4%, a much higher level than expected. The strong growth came mainly from the purchase of cars and trucks. Powell said the increase in sales may be tied to a push by consumers to buy big-ticket items before the tariff increases arrive.
“The data in hand so far suggest that growth has slowed in the first quarter from last year’s solid pace,” Powell said. “Despite strong motor vehicle sales, overall consumer spending appears to have grown modestly. In addition, strong imports during the first quarter, reflecting attempts by businesses to get ahead of potential tariffs, are expected to weigh on GDP growth.”
