Powell Warns: Tariffs Could Undermine Fed’s Inflation Control and Economic Growth

Powell Warns: Tariffs Could Undermine Fed’s Inflation Control and Economic Growth

April 16, 2025 — U.S. Federal Reserve Chair Jerome Powell has expressed concern over the growing impact of rising import tariffs on inflation and the country’s economic outlook, warning that the central bank may face increasing difficulty in balancing price stability with economic support.

In remarks delivered to the Economic Club of Chicago, Powell said:
“We may find ourselves in a situation where our dual mandate goals — managing inflation and supporting growth — come into increasing tension, which would complicate future policy decisions.”

Trade Tensions on the Rise
Powell’s comments came as President Donald Trump intensified trade actions, including a sweeping new round of import tariffs targeting Chinese goods, along with an investigation into critical mineral imports — moves that risk escalating global trade tensions further.
Economists have cautioned that such tariffs could raise domestic prices, weaken consumer spending, and dampen investment, especially as policy direction remains uncertain.

Signs of Strain in Markets and the Economy
U.S. equities dipped following Powell’s remarks, while Treasury yields also edged lower, signaling investor anxiety over short-term policy direction and macroeconomic health.
According to projections from the Federal Reserve Bank of Atlanta, U.S. GDP for Q1 2025 may contract slightly at –0.1%, weighed by subdued consumer spending and a surge in imports ahead of new tariffs.

Interest Rate Path Still Unclear
Powell refrained from providing a clear direction on future interest rates but emphasized the importance of anchored inflation expectations.
Market expectations remain tilted toward easing: the CME FedWatch Tool indicates traders anticipate the Fed could cut rates by 75 to 100 basis points by year-end if economic headwinds persist.
“If long-term inflation expectations remain well-anchored, we can guide the economy forward even amid near-term price pressures,” Powell said.
“But if expectations begin to drift, the risks to our mandate increase significantly.”

Summary
Powell’s warning highlights the fragile balance currently facing the U.S. economy — challenged by tariff-driven price shocks, slowing growth, and mounting policy uncertainty. Should trade tensions deepen, the Fed may be forced to navigate increasingly complex policy trade-offs in the months ahead.