U.S. Federal Reserve Chair Jerome Powell departs after speaking during a Society for Advancing Business Editing and Writing (SABEW) Annual Conference on April 4 in Arlington, Virginia.Anna Moneymaker/Getty Images
U.S. Federal Reserve Chair Jerome Powell said President Donald Trump’s tariffs were larger than expected – likely prompting larger-than-expected inflation in the near term.
“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” Mr. Powell said. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
Mr. Powell made his remarks at the spring conference for the Society for Advancing Business Editing and Writing (SABEW), an association for business journalists, in the Washington D.C. suburb of Arlington, Virginia. Mr. Powell said, however, it is too soon for the Federal Reserve to change its course.
“The size and duration of these effects remain uncertain,” he said. “While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent.”
Mr. Powell described “elevated risks of both higher unemployment and higher inflation,” saying Trump administration “is in the process of implementing substantial policy changes” which include trade, immigration, fiscal policy and regulation.
Mr. Powell said he was declining to comment directly on Mr. Trump’s policies, saying it would be inappropriate to do so.
Mr. Powell’s comments – seen as more negative than his previous thoughts on the economy – came as global equity markets fell sharply for a second straight day, new data showed the U.S. economy created more jobs than expected in March and after China released details about its retaliatory tariffs against the United States.
Minutes before Mr. Powell’s speech, Mr. Trump called on the Fed chair to cut interest rates in a social media post.
The Fed is wrestling with what comes next for the U.S. economy as Mr. Trump institutes a new policy of tariffs that may push the U.S. into recession and reignite inflationary pressures. The tariff policy may cause economic fallout for countries across the world, including Canada.
Mr. Trump announced Wednesday, on what he called “Liberation Day,” that the U.S. would impose tariffs of at least 10 per cent on imports from nearly every country in the world.
In a post Friday on social media platform Truth Social, the president said, “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. Energy prices are down, Interest Rates are down, Inflation is down, even Eggs are down 69%, and Jobs are UP, all within two months – A BIG WIN for America. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”
Mr. Trump’s tariff policies are putting pressure on the Fed’s dual mandate to maintain maximum employment and an inflation rate of 2 per cent.
Investors sent the markets down for a second straight day Friday after China said it would impose a 34 per cent duty on U.S. products starting April 10. The S&P 500 Index dropped more than 3 per cent in Friday morning trading after falling 5 per cent Thursday. Market watchers estimated Thursday’s losses wiped US$2.5-trillion from global equities.
The U.S. economy added 228,000 jobs in March, well above the consensus forecast of 140,000. The survey used to arrive at the numbers was taken March 12, Mr. Powell said.
In March, the Federal Open Market Committee (FOMC) maintained its key federal funds rate at 4.25 to 4.50 per cent, with Mr. Powell noncommittal about the further cuts the market had been expecting this year. In a news conference, Mr. Powell had said it was “a good time for us to await for further clarity.” (Mr. Powell repeated that thought multiple times in his Friday remarks.)
In its formal statement in March, the FOMC said “Uncertainty around the economic outlook has increased … The Committee is attentive to the risks to both sides of its dual mandate.”
The next FOMC meeting is scheduled to take place on May 6 and 7; GDP data will be released later this month.