Fed Chairman Powell Signals Caution as Trump's Tariffs Threaten Inflation Outlook

Federal Reserve Chairman Jerome Powell warned on April 4 that the new tariffs announced by President Donald Trump could increase inflation and slow economic growth. However, he also hinted that the central bank would postpone any moves on interest rates until the impact becomes clearer. According to Powell: “It’s still too early to say which path monetary policy will take.” Speaking at a business press event in Arlington, Powell stated that the Fed is facing an “extremely uncertain outlook” following the decision to impose a 10% tariff and higher retaliatory taxes on some of the government’s major trade partners. Powell added that the Fed is prepared to be patient in assessing the consequences. He said: “Our duty is to maintain long-term inflation expectations at a stable level and ensure that a one-time price increase does not become a persistent inflation problem.” These comments came just weeks after the central bank kept its benchmark interest rate unchanged at 4.25% to 4.50%, citing increasing economic instability. Powell’s remarks indicate that the Fed is not in a hurry to change its policy stance, even as financial markets increasingly anticipate interest rate cuts beginning this summer. According to data from CME Group, the futures market shows increasing expectations that the Fed will cut interest rates by at least one percentage point before the end of the year. However, Powell emphasized that such expectations may be premature, especially if inflation risks begin to rise again. While acknowledging that the U.S. economy is still “in good shape” with low unemployment and stable demand, Powell raised concerns about consumer worries regarding inflation and noted that core inflation remains above the Fed’s 2% target, at 2.8% as of February. Trump has publicly urged the Fed to cut interest rates, accusing Powell of not responding to the declining inflation. But Powell dismissed the political pressure and reaffirmed the Fed’s independence and dual mandate: to stabilize prices and maximize employment. “Although tariffs are likely to create at least a temporary increase in inflation, it is also possible that these effects could be more persistent. To avoid that outcome, long-term inflation expectations need to be kept stable.” Several countries have announced retaliatory tariffs in response to the White House’s actions, complicating the global trade outlook and inflation in the United States. Powell stated that the overall economic impact remains uncertain, especially regarding the duration of new price pressures spreading throughout the supply chain. Meanwhile, Bitcoin ( BTC ) reacted little to Powell’s remarks and continued trading above $83,000, maintaining recent growth amid the volatility of the risky asset market. The Fed’s next policy decision will be announced in early May, but Powell did not provide any signs that a change is imminent.