Powell Signals Fed Still on Hold, Wary of Persiste

Powell Signals Fed Still on Hold, Wary of Persistent Price Shock

By Craig Torres and Amara Omeokwe

04/04/2025 10:59:57 [BN]

(Bloomberg)

▪Federal Reserve Chair Jerome Powell says the economic impact of new tariffs is likely to be significantly larger than expected and may lead to higher inflation and slower growth.

▪Powell emphasizes that the central bank must ensure that the tariff increases do not lead to a growing inflation problem and that they are well-positioned to wait for greater clarity before considering any adjustments to their policy stance.

▪Powell expects the current high level of uncertainty driven by the new administration's policies to fade, saying "if you fast forward a year from now, the uncertainty should be much lower."

Federal Reserve Chair Jerome Powellsaid the economic impact of new tariffs is likely to be significantly larger than expected, and the central bank must make sure that doesn’t lead to a growing inflation problem.

“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” Powell said Friday at the Society for Advancing Business Editing and Writing annual conference. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”

Despite that view, in a question-and-answer session following his speech, Powell emphasized the central bank doesn’t need to hurry to adjust interest rates.

His remarks follow President Donald Trump’s announcement of sweeping new tariffs on imports from across the globe, which has already begun provoking retaliatory responses from foreign governments.

Powell’s tone was more cautious than his March 19 press conference when he said the inflationary impact of tariffs was expected to be transitory.

“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,” Powell said Friday.

He then stressed that Fed action will be focused on arresting any rise in public perceptions that inflation was slipping from the Fed’s control.

“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. “We are well positioned to wait for greater clarity before considering any adjustments to our policy stance.”

During Powell’s remarks, a selloff in stocks deepened, bonds surged and oil hit a four-year low extending losses that were already being driven by China’s decision to step up its the fight against Trump’s tariffs.

In his Q&A, Powell expressed confidence the current high level of uncertainty driven by the new administration’s policies would fade.

“If you fast forward a year from now, the uncertainty should be much lower,” he said. “The actual effects of the policies should then be pretty manifest and clear.”