The Fed chair acknowledged that weakening the economy and rising inflation could ultimately turn two central bank targets into conflict.
“We may be in a challenging scenario where the goals of dual mandart are tense,” he said. “If that happens, we consider how far the economy is from each target, and the potentially different time horizons where each gap is expected to close.”
Trump continues to dramatically change his plan to impose new tariffs and give businesses, consumers and global financial markets the upper hand.
He betrayed the so-called mutual tariffs announced on April 2nd after the plans disrupt the market. He moved forward with global tariffs and obligations of over 100% baseline in China, and then sent mixed signals to create exemptions for smartphones and other technology products. He also imposes tariffs on automobiles, steel and aluminum imports, and then there may be signal-type drugs and semiconductors.
Many analysts estimate tariffs will boost inflation and slow economic growth, Powell shares. Inflation measured by the Fed’s priority gauge was 2.5% per year by February, significantly lower than the post-Covid peak, but stubbornly surpassed the Fed’s 2% target. In his speech, Powell said he estimates that the measurements will be estimated at 2.3% in March.
Inflation expectations
Powell reiterated Wednesday that the levels of tariff increases announced so far are significantly higher than expected. He added that the job is likely to produce at least a temporary rise in inflation, but the inflation effect could also be more sustained.
“While avoiding that outcome depends on the magnitude of the effect, the time it takes for them to pass fully to the price, and ultimately, fully locking in the long-term inflation expectations,” he said.
Fed officials cut interest rates three times in a row at the end of 2024, but in 2025 it shows that they will take a more patient approach in the face of sticky inflation. Many officials have doubled that idea, underscoring the need to minimize the risk that tariffs lead to sustained rise in inflation and long-term expectations of price growth.
Meanwhile, 4.2% layoffs and unemployment in March remained low. US employers added 228,000 jobs last month, exceeding expectations.
