The president of the Federal Reserve, Jerome Powell, warned on Wednesday that the Central Bank could face a “challenging scenario” or administer both accelerating inflation and a decelerated economy caused by the impact of President Trump’s tariffs.
In the comments written in the Chicago Economic Club, Powell reiterated that Trump administration rates are “significant than expected.”
“It is likely that the same is true for economic effects, which will include higher inflation and slower growth,” he added.
Thus, Powell said the Federal Reserve can be patient and wait to see how Trump administration rates and other economic policies are developed before making changes in interest rates. The acute volatility in financial markets since Mr. Trump announced Scan tariffs April 2Just to put most of them waiting for a week later, it has led to speculate on whether the Fed would say its key interest rate or take other measures to calm investors.
“At the moment, we are well positioned to expect greater clarity” on the impact of policy changes in areas such as immigration, taxes, regulation and tariffs, Powell said.
Powell said inflation will probably be temporary, but “it could also be more persistent,” echoing a concern expressed by the majority of the interest -rates setting committee of the 19 members of the Fed in the minutes of its meeting last month.
Trump tariffs have led economists to reduce their expectations for the economic growth of the United States and predict greater inflation this year. Because
“Tariffs probably lead to high prices, while softening the feeling of the consumer and possible commercial optimism means slower growth,” said Scott Helfstein, head of Global X investment strategy, in an email. “This will hinder the economic prognosis, and the Fed will probably expand the growth of its bands and rates with risks both for the stability of prices and for the increase in employment.”
However, some divisions have emerged between the Fed Interest Committee. On Monday, the governor of the Fed, Christopher Waller, said he expanded even in a large increase in tariffs to be temporary, even if they stay in his place for several years. At the same time, Hey also expects such great duties to weigh on the economy and even threaten a recession.
If the economy slowly slows down, even if inflation remained high, Waller said it would support to reduce interest rates “before, and to a greater extent than I had previously thought.”
But other Fed officials, including Neel Kashkari, president of the Fed Minneapolis branch, have said they are more focused on combating the effects of the highest rates on inflation, which suggests that they are less likely to have the cutting time.
For now, the most recent reports suggest that the economy is solid. The hiring has been solid and inflation cooled in March. However, consumer confidence and business measures have to increase economists that spending and business investment could power.