By AP Economics Writer Christopher Al Gerber
ARLINGTON, Va. (AP) — The Trump administration’s vast new tariffs are likely to lead to an increase in the US economy and increased growth, Federal Reserve Chairman Jerome Powell said Friday.
Powell said tariffs and their possible economic and inflation impacts were “significantly greater than expected.” He also said import taxes would likely lead to “at least a temporary increase in inflation,” but added that “the effect could also be more permanent.”
“Our duty is to make sure that a one-time rise in price levels does not become an ongoing inflation issue,” Powell said in a statement submitted to the Association’s meeting for editing and writing business.
Powell’s focus on inflation suggests that the Fed will likely not change benchmark interest rates to around 4.3% in the coming months, rather than cutting them off. Increased borrowing costs help slow the economy down and cool inflation. Meanwhile, Wall Street investors are hoping to cut interest rates five times this year. This has been rising since President Donald Trump announced tariffs on Wednesday.
Powell also emphasized that the full impact of tariffs on the economy is not yet clear, and that the Fed will remain on the sidelines until it is clearer about the economy. He acknowledged that many companies say they are refraining from new investments until they feel the impact of tariffs better.
“We see a lot of waiting, including us,” Powell said in the question and answer session. “And that seems right in this period of uncertainty.”
Trump separately urged Powell to cut rates, citing inflation and lower energy prices on his social media platform Truth Social.
“This is the perfect time for Fed Chairman Jerome Powell to cut interest rates,” Trump wrote. “Cut your interest rates, Jerome, and stop doing politics!”
Economists hope that tariffs will weaken the economy, threaten jobs and boost prices. In that scenario, the Fed can either cut fees to strengthen the economy, or keep it unchanged to combat inflation, or even hiking them. Powell’s comments suggest that the Fed will focus primarily on inflation.
Powell’s remarks come two days after Trump overturned the global economy, spurred retaliatory moves by China, and announced cleaning fees that sent out stock prices in the US and overseas.
Powell’s explanation of the impact of tariffs was more negative than last month when he said inflation arising from tariffs is likely to be temporary.
The weak growth and rising prices are a difficult combination for the Fed. Typically, central banks raise interest rates to reduce borrowing costs when growth is slow, boost the economy, slow spending and fight inflation.
“The Fed is in a tough place where accelerated inflation is set and the economy is ready to slow down,” said Kathy Boss Jansick, chief economist across the country.
The Fed is required by law to seek maximum employment and price stability, defined as 2% annual inflation. Powell acknowledged that tariffs that could cause prostitutes and raise prices could make both goals difficult to achieve.
“The two goals are… tense — or maybe that’s the case,” he said.
Powell said the economy and employment remained solid for now, but he noted that consumers and businesses are becoming more pessimistic about the future.
He also said inflation has fallen sharply since its peak in 2022, but recently progressing towards the central bank’s 2% target has been “slower.”
While unemployment rates reached 4.1% to 4.2% when the government reported on Friday that employment accelerated in March, adding 228,000 jobs, some positive news came when it reported that employment accelerated.
However, these figures measure employment in mid-March before the scope of the job becomes clear. Tariffs have increased uncertainty about how the economy will operate in the coming months, which could limit the willingness of companies to invest and hire.
Original issue: April 4, 2025, 11:36am EDT
