By Christopher Lugerber
WASHINGTON (AP) — The Federal Reserve can keep patients up and wait for how the Trump administration’s tariffs and other economic policies will unfold before making changes to interest rates, Chairman Jerome Powell said Wednesday.
“Just like that great Chicago Ferris Buhler once said, ‘Life moves pretty quickly,'” Powell said in a speech to the Chicago Economic Club. “For the time being, we look forward to becoming clearer about the impact of policy changes in areas such as immigration, taxation, regulation, tariffs and more,” Powell said.
Since President Donald Trump announced the sweeping fees on April 2, the rapid volatility in financial markets has led to speculation about whether the Fed will immediately cut key interest rates or take other steps to calm investors, just to put most people on hold in a week. However, unless there is a breakdown in the market for Treasury securities and other malfunctions, the Fed is unlikely to intervene, economists say.
The stocks fell even further after Powell’s remarks. The Broad S&P 500 index fell by more than 2% in afternoon trading.
In his prepared remarks, Powell reiterated that the Trump administration’s tariffs were “a lot bigger than expected.”
“The same is likely to be true of the economic impact, which means higher inflation and slower growth,” he said.
Powell also said the Fed could face threats to both the missions given by Congress. Achieve maximum employment and maintain stable prices. If both inflation and unemployment rates rise, it becomes a “challenging scenario,” he said. Because the Fed will essentially have to choose whether to keep interest rates high to combat inflation or cut them to promote growth and employment.
“Our tool does just one of these two things at the same time,” he said in the question and answer session.
Powell and many Fed officials have previously signaled that they are more concerned about tariffs that push inflation higher than a potential blow to growth. That means the Fed could continue to raise interest rates to combat inflation, even if the economy weakens.
Powell said inflation from tariffs is likely to be temporary, but “it could be more sustainable,” reflecting concerns raised by the majority of the Fed’s 19-member interest rate setting committee in minutes of last month’s meeting.
However, a portion of the Fed’s interest rate setting committee has emerged. On Monday, Governor Christopher Waller said he expected even a significant increase in tariffs to be temporary, even if it existed for several years. At the same time, he also hopes that such a great duty will even strain the economy and threaten the recession.
Even if inflation rises, if the economy slows sharply, Waller said he supports cutting interest rates faster and in a greater range than previously thought.
However, other Fed officials, including Neil Kashkari, president of the Fed’s Minneapolis branch, have said they are focusing more on fighting the impact of increased tariffs on inflation, suggesting that they are unlikely to support interest rate cuts anytime soon.
For now, the latest reports suggest that the economy is in a solid form. Employment was solid and inflation cooled in March. However, the measurement of consumer and business trust has plummeted, raising concerns among economists that spending and business investment could weaken.
Powell said he shared these concerns. He said the rise in tariffs is so large, and there is so much uncertainty surrounding the administration’s next move, which could lead to businesses being more cautious about spending.
“These are very fundamental changes in what has been held for so many years… US policy,” he said. “The Smoot Holy tariffs were not really this large, 95 years ago. So there is no modern experience in how to think about this.” The Smoot Holy tariffs in 1930 have been accused of exacerbating the Great Repression.
If uncertainty persists, Powell said, “It would be… an investment, in general, a focus on investment.”
Original issue: April 16, 2025, 1:35pm
