US Fed says tariffs risk derailing inflation and jobs targets
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The news: US Federal Reserve Chair Jerome Powell warned the US economy is likely moving away from the Fed’s goals “for the balance of the year”.
Speaking at the Economic Club of Chicago, Powell said tariffs are “likely to generate at least a temporary rise in inflation”, with a risk of more persistent effects.
He added the level of tariff increases is “significantly larger than anticipated” and that their economic effects are likely to be as well.
Describing the current situation as a “challenging scenario” for the Fed’s dual mandate, Powell stressed that “without price stability, we cannot achieve the long periods of strong labour market conditions”.
He repeated recent remarks that the Fed is “well positioned to wait for greater clarity” before adjusting policy.
What they said: "The level of the tariff increases announced so far is significantly larger than anticipated. The same is likely to be true of the economic effects, which will include higher inflation and slower growth," Powell said in his speech.
There “isn’t a modern experience for how to think about this”, Powell added, saying markets are functioning “as you would expect… struggling with a lot of uncertainty”.
Meanwhile, speaking at an event in Columbus, Ohio, Cleveland Fed President Beth Hammack echoed Powell’s remarks, saying “there is a strong case to hold monetary policy steady” in the face of trade-driven volatility.
The context: Trump’s sweeping tariffs have introduced high levels of uncertainty into markets. Powell’s remarks followed Nvidia’s disclosure that new US export controls on its H20 chips would trigger a USD5.5 billion charge.
Global stocks had rebounded after Trump briefly paused his highest so-called reciprocal tariffs, but markets overnight fell amid the fresh US export curbs on chipmakers, a downgraded global trade forecast, and Federal Reserve caution triggered a broad sell-off.
The sources: Jerome Powell speech , Bloomberg, Reuters
