Fed’s Powell Warns Tariffs Could Boost Inflation \ Newslooks \ Washington DC \ Mary Sidiqi \ Evening Edition \ Federal Reserve Chair Jerome Powell warned that President Trump’s tariffs may raise inflation in the coming months, passing costs on to consumers. Despite some GOP criticism, the Fed supports rate cuts later this year while monitoring inflation trends. Economists expect tariffs to push inflation toward 3–3.5% by year-end.
Quick Looks
- Powell’s warning: Tariffs likely to drive modest inflation increase soon.
- GOP pushback: Senators argue cost spike could be a one-off, not inflationary.
- Rate outlook: Fed still leaning toward cuts this year, with watchful inflation eye.
Deep Look
Federal Reserve Chair Jerome Powell returned to Capitol Hill this week for his semiannual testimony and issued a carefully worded but clear warning: President Donald Trump’s sweeping tariffs are likely to push inflation higher in the coming months, putting pressure on American consumers and complicating the Fed’s monetary policy outlook. While inflation has remained relatively tame thus far, Powell signaled that economic headwinds are mounting, and tariffs could shift that trend.
His comments come as the Fed attempts to maintain a delicate balance—responding to evolving inflation data, countering political pressure, and defending its institutional independence—while some Republicans accuse Powell of politicizing economic assessments.
Tariffs: The Hidden Tax Consumers May Soon Feel
Appearing before the Senate Banking Committee, Powell acknowledged that although inflationary effects from the tariffs have not fully materialized, they are expected to build over time. “There will be some inflation from tariffs coming,” he said. “Not yet, but over the course of the coming months.”
The tariffs in question include levies on Chinese imports, European steel, and goods from countries Trump’s administration has labeled trade violators. While tariffs are technically taxes on imports, businesses often pass those costs down to consumers, either through higher prices or reduced service quality.
Powell estimated that these trade duties could cost hundreds of billions of dollars annually, with a notable portion falling on consumers. “We’re just kind of waiting to see more data on that,” he told lawmakers.
Despite the modest 0.1% increase in the Consumer Price Index (CPI) from April to May—putting year-over-year inflation at 2.4%—economists broadly agree that tariffs could drive that figure closer to 3.5% by year-end if the policy remains in place or is expanded.
Federal Reserve Strategy: Rate Cuts on the Table, But Not Rushed
Powell also reaffirmed that most Federal Reserve officials support cutting interest rates in 2025, but he stopped short of committing to a specific timeline. Instead, the Fed chair emphasized a data-dependent approach—cautiously watching how tariffs and broader price trends evolve before making decisions.
The Fed’s dual mandate—maximum employment and price stability—compels officials to consider the full economic picture. With inflation moderating and job growth steady but slowing, Powell’s team is in no rush to overreact.
“The path of inflation has been surprising on the downside,” he noted. “But we’re not going to overcorrect based on what could be temporary disinflationary forces.”
Republican Criticism: Tariffs Are Not the Problem?
Not all lawmakers were convinced. Sen. Pete Ricketts (R-Nebraska) questioned Powell’s emphasis on tariffs as an inflationary risk, suggesting they may act more like a one-time price shock rather than a sustained inflation driver.
Sen. Bernie Moreno (R-Ohio) went further, accusing Powell of allowing personal or political bias to shape his economic views. “You should consider whether you are looking at this through a fiscal lens or a political lens because you just don’t like tariffs,” Moreno said pointedly. Powell did not respond, choosing instead to reiterate the Fed’s evidence-based policy approach.
The criticism reflects a broader Republican realignment under Trump, where tariffs are now seen as strategic leverage rather than harmful distortions. GOP support for protectionist policies—once antithetical to traditional conservative economics—has grown, particularly in Rust Belt states.
Trump’s Pressure Campaign Against Powell Continues
President Trump has repeatedly attacked Powell, whom he appointed as Fed chair in 2018, for not slashing interest rates aggressively enough. Trump has labeled him a “numbskull” and a “fool,” arguing that lower rates would reduce borrowing costs for the federal government and stimulate faster growth.
Powell, for his part, has remained firm that the Fed’s decisions are not designed to manage federal debt. “We are not here to finance the government,” he said during earlier testimony. Still, the attacks have prompted concern among economists about the Fed’s long-standing independence being eroded.
Wall Street Outlook: Inflation Still a Threat
Financial markets are watching closely. Most Wall Street economists anticipate that inflation will accelerate over the next two quarters, driven in part by tariffs but also by persistent wage growth and elevated consumer spending. Firms like Goldman Sachs and Barclays now expect inflation to finish the year between 3.0% and 3.5%—well above the Fed’s 2% target.
If Powell is correct in forecasting a delayed inflation response from tariffs, it could box the Fed into a narrower policy window—forced to raise rates to counteract late-year price spikes even as economic momentum cools.
Why Tariffs Matter Beyond Prices
Tariffs don’t just raise prices—they alter global supply chains, distort business investment strategies, and reduce consumer choice. Retailers, manufacturers, and importers face new logistical and financial hurdles, often resulting in higher operating costs that ultimately feed into inflation metrics.
Tariffs also spark retaliation, as seen in previous rounds of China-U.S. trade disputes, where American agricultural products were hit by steep counter-duties. These feedback loops complicate forecasts and make monetary policy more reactive than proactive.
In testimony, Powell acknowledged that uncertainty caused by trade tensions is already weighing on business sentiment and hiring. While job numbers remain strong, wage growth and hours worked have plateaued—signs that employers are cautious about expanding amid policy unpredictability.
The Road Ahead: Risks and Unknowns
- If tariffs expand (as Trump has hinted), inflationary pressure could intensify faster than the Fed anticipates.
- If inflation undershoots despite tariffs, rate cuts could resume more rapidly, potentially boosting markets but risking further imbalance.
- If political tensions rise, the Fed’s ability to act independently could be tested in ways not seen since the Nixon era.
For now, Powell’s message is clear: the Fed is watching, waiting, and willing to adjust—but not blindly.
Fed’s Powell Warns Fed’s Powell Warns
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