Trump's tariff strategy sparks inflation concerns, as per Powell's caution
Federal Reserve Chair Jerome Powell Warns of Persistent Inflation due to Trade Policies
In a speech delivered in Chicago, US Federal Reserve Chair Jerome Powell has issued a warning about the potential for higher and more persistent inflation as a result of President Donald Trump's aggressive trade policies.
Powell stated that tariffs have increased prices of goods, causing inflation to exceed the Federal Reserve's target of 2%. However, the pass-through of tariffs into consumer prices is slower than initially expected and might be more persistent over time, posing a risk that requires careful assessment and management.
The central bank chief noted that the economic effects of tariffs could be more persistent than initially anticipated, potentially leading to a continuous inflation process that could impact economic activity and necessitate ongoing monitoring before adjusting monetary policy.
While the overall US economy remains solid, Powell indicated that there is great uncertainty, with some slowing in job creation and consumer confidence possibly affected by trade policy-induced cost pressures.
In response to the uncertainty, the Federal Reserve is adopting a data-driven approach, waiting for clearer evidence before deciding future rate changes, whether hikes or cuts. It is generally expected that the central bank will not touch the interest rate at its next meeting in May.
Powell's cautious stance reflects the complex interplay between trade-induced inflation and overall economic stability. His warning indicates a potential concern about the economic impact of President Trump's trade policies, particularly tariffs, which have been announced in numerous instances, reversed, and subject to overall erratic policy changes.
This uncertainty has resulted in temporary market turbulence, as investors grapple with the potential economic consequences of the trade policies. US President Trump has repeatedly urged Powell to lower interest rates, but Powell's comments suggest a desire to prevent a continuous inflation process that could undermine the economic recovery.
Fed colleague Christopher Waller had previously warned of serious consequences for the American economy if the central bank were to lower interest rates too quickly in response to short-term economic shocks, such as those caused by trade policies.
In summary, the Federal Reserve is closely monitoring the impact of trade policies on inflation and economic growth, adopting a cautious and data-dependent approach to navigating the complex interplay between trade-induced inflation and overall economic stability.
| Aspect | Powell’s View | |------------------------------|----------------------------------------------------------------| | Inflation Impact of Tariffs | Tariffs raise prices, causing inflation above the Fed's target; pass-through is slow; effects might be short-lived or persist longer | | Economic Growth | Moderate growth, with some labor market softening and uncertainty from tariffs | | Fed Policy Response | Holding rates steady to monitor data; cautious about premature rate cuts or increases | | Long-term Outlook | Uncertainty remains; trade policies could exert persistent inflationary pressure and thus impact growth over time |
Economic and social policy discussions should now include the potential long-term effects of trade-induced inflation, given Jerome Powell's warning about the possibility of higher and persisting inflation due to tariffs. In this context, business leaders and financial analysts need to consider the long-term implications of tariff-induced pricing changes on their investment strategies.
