Trump’s tariffs will likely raise inflation, Federal Reserve chair says

ARLINGTON, VA.— The escalating trade war between the U.S. and the rest of the world will likely raise inflation, Federal Reserve Chair Jerome Powell said Friday.

That threatens years of the central bank’s work to wrestle down prices.

The White House announced sweeping new tariffs Wednesday, throwing the already precarious markets into freefall. In his first public comments since then, Powell said at the Society for Advancing Business Editing and Writing conference that while it’s too soon to measure the impact, it’s possible inflation will not only rise but stay high.

Trade isn’t the only stressor. Trump has also given edicts on immigration, fiscal policy and regulation. And the Fed, like many other businesses and consumers, isn’t quite sure yet how to respond.

“I realize that the uncertainty is high, and what we’ve learned is that the tariffs are higher than anticipated,” Powell said. “We still don’t know where that comes to rest, though.”

Many consumers — already stretched thin from years of post-COVID inflation — will see even higher costs as a result of this latest round of tariffs, which affect countries across the world and most goods.

An analysis Wednesday from the Yale Budget Lab showed the average household will lose $3,800 in 2024 dollars because of all tariffs announced this year. The U.S. has already imposed import taxes on China, Canada, Mexico, automobiles, steel and aluminum.

Though the White House has said its trade policy will ultimately benefit the economy, tariffs have put the Fed in a tough spot. After raising interest rates to bring inflation down from a 40-year high, the central bank started making cuts late last year. Still, the 2% inflation target — the agreed-upon level to achieve both stable prices and maximum employment — has stayed just out of reach.

The personal consumption expenditures price index, the central bank’s preferred inflation gauge, rose 2.5% year-over-year in February, according to data the U.S. Bureau of Economic Analysis released on March 28. Core inflation, which excludes volatile food and fuel prices, rose 2.8%.

“One of the things that the Fed has been faced with, and it’s really been over the course of the last year, is that the so-called ‘last-mile problem’ has turned out to be much, much more difficult than they thought it was going to be,” said University of Minnesota economics professor V.V. Chari.

Trump has pressured Powell and the Fed to bring down interest rates, though the central bank is independent and nonpolitical. Powell stressed that on Friday, noting even the go-to purple tie he wore was in part a choice to avoid partisan red or blue.

Still, Trump accused Powell on Friday of “playing politics,” writing on social media that “this would be a PERFECT time” to cut rates.

“He is always ‘late,’ but he could now change his image and quickly,” Trump wrote of Powell. “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”

Powell is no stranger to economic shocks, after guiding the central bank through the pandemic and its ripple effects. This moment is different, he said, partly because there are risks for both high inflation and high unemployment.

“It kind of rhymes, but it’s not exactly the same thing,” Powell said.

A resilient U.S. labor market has helped keep the economy strong despite stubborn price increases. Friday’s jobs report — which shows hiring before the most recent tariffs — came in rosier than expected, with employers adding 228,000 jobs in March and unemployment ticking up but holding around 4%.

“Looking across many indicators, the labor market appears to be broadly in balance and not a significant source of inflationary pressure,” Powell said.

The jobs report “gives the Federal Reserve the space to keep policy on extended hold as it monitors the impact of the Trump administration’s aggressive tariffs on inflation,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics, in a statement.

The economic advisory firm is predicting tariffs will push inflation toward 4% this year.

Though the Fed’s moves are unclear, particularly so if unemployment rises, too, Powell said the central bank remains committed to bringing inflation back down to 2%.

“We think we’re well-positioned,” he said, “to address whatever may come.”