Federal Reserve Chair Jerome Powell warned that newly proposed tariffs could force the Fed into a difficult trade-off between its two main goals: keeping inflation in check and supporting economic growth. Speaking in Chicago, Powell said the tariffs are likely to move the economy “further away from our goals” over the course of the year by increasing inflationary pressures while simultaneously slowing growth.
Powell noted that the inflationary impact of tariffs could be either temporary or longer-lasting. The duration and severity will depend on the size of the tariffs, how quickly higher costs spread across the economy, and whether businesses and consumers adjust their inflation expectations. If firms pass higher import costs onto customers and expectations become unanchored, upward pressure on prices could persist.
He avoided giving specific guidance on the timing of interest-rate moves, emphasizing that the Federal Reserve is “well positioned to wait for greater clarity” before altering policy. That suggests the Fed is monitoring incoming data to determine how much tariffs and other developments affect both inflation trends and economic activity.
Financial markets have continued to forecast several rate cuts beginning in June, with traders pricing in three to four reductions by the end of 2025. However, Powell’s cautious tone contributed to a pullback in equity markets and a decline in Treasury yields as investors reassessed the policy outlook in light of elevated uncertainty about trade policy and inflation.
Overall, Powell’s comments underline the Fed’s dilemma: tariffs can raise consumer prices and weigh on growth at the same time, complicating the central bank’s effort to balance its dual mandate. The Fed appears willing to wait for clearer evidence before choosing a path for interest rates, but ongoing trade developments will be an important factor to watch in the months ahead.