Tariffs likely to ignite higher inflation, slower growth, Fed chair reports; temporary, or more persistent is uncertain

Elevated levels of unemployment or inflation can be damaging and painful for communities, families, and businesses, the chair of the nation’s central bank said Wednesday as he pointed to higher tariffs that are likely to cause higher inflation and slower growth, at least temporarily.

In remarks on the economic outlook to the Economic Club of Chicago, in Chicago, Federal Reserve Board Chair Jerome H. (“Jay”) Powell said despite uncertainty from the Trump administration’s policy changes on trade, immigration, fiscal policy, and regulation, the U.S. economy is still in a “solid position.”

“The level of the tariff increases announced so far is significantly larger than anticipated,” Powell said. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth. Both survey- and market-based measures of near-term inflation expectations have moved up significantly, with survey participants pointing to tariffs. Survey measures of longer-term inflation expectations, for the most part, appear to remain well anchored; market-based breakevens continue to run close to 2%.”

Powell said the tariffs are “highly likely” to generate “at least a temporary rise in inflation.” In that regard, Powell’s views mesh with those of Fed Gov. Christopher Waller, who said Monday that he expects inflation to rise, but that it would be temporary, ending by 2026.

However, Powell added that the inflationary effects “could also be more persistent.”

“Avoiding that outcome will depend on the size of the effects, on how long it takes for them to pass through fully to prices, and, ultimately, on keeping longer-term inflation expectations well anchored,” he said.

Powell said the Fed’s obligation “is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem.”

“As we act to meet that obligation, we will balance our maximum-employment and price-stability mandates, keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans,” he said.

Federal Reserve Board Chair Jerome H. Powell: Economic Outlook