President Donald Trump’s surprisingly high and expansive ‘Liberation Day’ tariffs levied on the rest of the world will increase inflation and slow down growth in the U.S. economy, said Federal Reserve Chair Jerome Powell on Friday.
The Nasdaq closed in a bear market on Friday and many other major stock indexes registered steep drop offs as the business community and consumers alike continue to lose faith in the economic direction of the country.
“While uncertainty remains elevated, it is now becoming clear that tariff increases will be significantly larger than expected,” Powell said at a conference held by the Society for Advancing Business Editing and Writing in Arlington, VA. “The same is likely to be true of economic effects which will include higher inflation and slow growth.”
His first public comments since Trump’s tariffs on Wednesday comes on the heels of the worst one-day loss in the stock market since March 2020, the beginning of the COVID-19 pandemic.
Fortunately, the recent jobs report released on Friday showed higher than expected job growth, particularly in the health, social services and transportation industries. Even state and local governments saw a gain of 23,000 jobs, offsetting the nearly 15,000 total jobs cut by the Department of Government Efficiency in the federal government the past two months. These are all signs of an economy that is still healthy according to Powell.
Powell reiterated throughout the conference that it was still too soon for the Fed to make any kind of determination regarding monetary policy until four planks of Trump’s agenda take full effect: trade, immigration, fiscal policy and [de]regulation.
The president took a direct approach towards the nonpartisan Federal Reserve Chair, directly calling on Powell in a Truth Social post to, “CUT INTEREST RATES JEROME, AND STOP PLAYING POLITICS.”
The Fed has kept interest rates steady since January, and are projecting rate cuts later in the year. At the moment, they don’t seem to be budging as the political actions of Trump are yet to fully bear its uncertain fruit.
Powell did also ensure the long-term outlook on inflation remained “well-anchored” to the Fed’s 2% inflation rate benchmark. However, Powell has been wrong about the long-term outlook on inflation before. He referred to rising inflation in 2021 as “likely to prove temporary”. Inflation continued to rise after his comments, eventually leading the Fed to increase interest rates in 2022.
Regarding his comments at the panel, Powell may be too optimistic this time, said James Nelson, business editor at the Milwaukee Journal Sentinel, who was one of the co-interviewers on the panel.
“How uncertain business owners and people are, I think it’s going to be even worse,” Nelson said. “And I think he [Powell] hinted at that without scaring people.”
Uncertainty surrounding the future health and prospects of the economy and country at large have racked the minds of many Americans since Trump’s return to office. Consumer sentiment and the stock market have reached lows not seen in years.
Despite some of the cautioning from Powell on likely outcomes for American consumers and businesses, his optimism on long-term inflation and it being too soon to make a conclusion regarding economic conditions along with a promising jobs report left some feeling reassured.
“There was something very reassuring about that. The Fed is the Fed, and I really appreciated him,” Bloomberg’s Senior Story Editor Stacey Vannek Smith, who co-interviewed Powell, said regarding her conversation with the Fed Chair.