- Fed Chair Jerome Powell warns Trump’s tariffs may cause longer-lasting inflation
- Powell distances from earlier view that inflation impact would be “transitory”
- Trump calls for immediate rate cuts, urging Powell to “stop playing politics”
- Traders now expect four rate cuts in 2025 as recession fears grow
Fed Caught in Crossfire as Tariffs Threaten Higher Inflation and Slower Growth
Federal Reserve Chair Jerome Powell signaled a significant shift in tone Friday, acknowledging that the inflationary impact of President Donald Trump’s newly imposed tariffs could be “more persistent” than previously expected. The remarks underscore the growing economic uncertainty as markets digest a historic escalation in U.S.-China trade tensions.
Speaking at an event in Arlington, Virginia, Powell said the “significantly larger-than-expected” trade duties announced this week are likely to result in higher inflation and slower economic growth — a far more cautionary assessment than his prior stance that inflation would be “transitory.”
“It is too soon to say what will be the appropriate path for monetary policy,” Powell stated, highlighting the Fed’s current wait-and-see approach amid heightened uncertainty. However, he acknowledged that “the same is likely to be true of the economic effects” of the tariffs as their size and potential duration now appear larger than initially anticipated.
The statement marks a departure from Powell’s comments just weeks earlier, when he had said his base case assumed any inflation from tariffs would be short-lived. That view was also echoed by Treasury Secretary Scott Bessent at the time.
Trump Applies Public Pressure on Fed
President Trump wasted no time in responding, taking to social media Friday to pressure Powell into cutting interest rates immediately. “This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly,” Trump wrote. “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”
Trump’s latest comments come as financial markets reel from the steepest tariffs in over a century. His decision to impose an additional 34% tariff on Chinese goods — bringing total duties to 54% — prompted swift retaliation from China and triggered a historic selloff on Wall Street.
The Dow Jones Industrial Average lost over 2,200 points in a single day, its worst performance since the onset of the COVID-19 pandemic in March 2020. Friday’s continued market decline deepened the turmoil, wiping out trillions in market value.
Traders Expect Fed to Act
In response to the dual threat of rising prices and slowing growth, traders have increased bets on aggressive policy easing. Market expectations now include four interest rate cuts in 2025, with the first anticipated as early as June. Economists warn the U.S. economy could be heading toward recession if inflation continues to climb while consumer demand and business investment slow under the weight of higher trade costs.
The Dow Jones Industrial Average lost over 2,200 points in a single day, its worst performance since the onset of the COVID-19 pandemic in March 2020. Friday’s continued market decline deepened the turmoil, wiping out trillions in market value. The Dow Jones Industrial Average lost over 2,200 points in a single day, its worst performance since the onset of the COVID-19 pandemic in March 2020. Friday’s continued market decline deepened the turmoil, wiping out trillions in market value.
The Federal Reserve now faces a delicate balancing act — managing rising inflation expectations driven by protectionist policies, while also addressing fears of an economic downturn.
As the tariff fallout deepens, all eyes will remain on the Fed’s next move — and whether Powell can maintain the Fed’s independence amid escalating political and economic pressure.
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