Powell Speaks Later Today in Wake of Jobs Report, Trump Tariffs
Powell said Friday the economic effects of President Donald Trump’s massive tariff hikes could be larger than expected, noting that he sees so-called stagflationary headwinds ahead.
The outlook for the U.S. economy is still highly uncertain, with “elevated risks of both higher unemployment and higher inflation,” Powell said in prepared remarks at the annual conference for the Society for Advancing Business Editing and Writing in Arlington, Va.
The combination of stagnating economic growth and escalating prices is known as stagflation—a scenario the Fed would very much like to avoid.
But as the White House’s trade plans come into focus, Powell acknowledged that the magnitude of the tariff increases could generate more persistent inflation. On Wednesday, Trump announced sweeping tariffs of at least 10% on all countries, and higher-than-expected “reciprocal” tariffs on certain trade partners. That’s on top of the previously announced steel, aluminum, and auto tariff increases, as well as those levied against China, Canada, and Mexico earlier in the year.
“It is now becoming clear that the tariff increases will be significantly larger than expected,” Powell said Friday. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
Powell said the Trump administration’s tariffs are “highly likely” to generate at least a temporary rise in inflation. But he did also note that it is also possible that the effects from the tariffs could be “more persistent.” That, however, will depend on many factors: the final details of the tariffs implemented, the size of the economic effects, and how long it takes for the tariffs to pass through fully to consumer prices.
Avoiding the more persistent inflation, Powell said, would also very much depend on keeping longer-term inflation expectations in check.
“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.
The outlook for the U.S. economy is still highly uncertain, with “elevated risks of both higher unemployment and higher inflation,” Powell said.