Jerome Powell’s April 16 Speech: Tariffs May Trigger Inflation-Growth Trade-Off, Fed Stays Cautious
Federal Reserve Chair Jerome Powell acknowledged signs of slowing growth in the U.S. economy during his April 16 remarks at the Economic Club of Chicago, while emphasizing the importance of stable inflation expectations in a time of rising tariffs and geopolitical uncertainty.
On April 16, 2025 (local time), Jerome Powell delivered a closely watched speech in Chicago, offering a comprehensive overview of the U.S. economic outlook, the current monetary policy stance, and emerging risks—most notably from escalating tariff policies. His remarks reflected a careful balancing act: maintaining price stability without derailing the labor market amid weakening growth indicators.
Solid Labor Market, But Growth Headwinds Are Mounting
Powell opened his remarks by reaffirming that the U.S. economy remains on a relatively strong footing, with the labor market near maximum employment. However, the latest data, including projections for Q1 GDP, suggest that growth is moderating, particularly due to trade-related uncertainties and a noticeable rise in import costs driven by tariffs.
Consumer spending, while still growing, has become more subdued, and much of the recent strength in retail—especially in auto sales—appears to be driven by preemptive purchases ahead of expected tariff hikes. Powell noted that such front-loading of imports may inflate short-term trade data but weigh negatively on GDP calculations.
“The tariff increases have come in at levels significantly higher than anticipated,” Powell stated, noting that private sector forecasts have been downgraded in response.
Tariffs Creating a Policy Dilemma: Inflation vs. Growth
One of the most striking themes of Powell’s speech was the emerging dilemma for the Fed: how to address simultaneous inflationary pressures and slower growth. He warned that this mix could pose significant challenges to the Fed’s dual mandate of maximum employment and stable prices.
Powell emphasized that inflationary pressures from tariffs could prove persistent, and while the Fed views some of these effects as temporary, they cannot be entirely dismissed. The longer inflation expectations remain elevated, the harder it becomes to stabilize the economy without disrupting the labor market.
“If long-term inflation expectations become unanchored, a temporary rise in prices could evolve into a structural problem,” Powell cautioned.
This signals a potential return to rate hikes should inflation show signs of becoming entrenched—despite the Fed’s current “hold” posture.
Labor Market Still Resilient—For Now
From January through March 2025, the U.S. economy added an average of 150,000 jobs per month, which, while solid, represents a slowdown from the post-pandemic hiring boom. Unemployment remains historically low, and wage growth is still outpacing inflation, helping to cushion the blow from higher prices.
However, Powell pointed to early signs of softening, particularly in the public sector and higher education, where hiring freezes and layoffs are starting to accumulate. Though he stressed it’s “too early to assess the full impact,” the Fed is monitoring these trends closely.
Inflation Remains Above Target, With Risks Tilted Upward
Powell noted that the headline Personal Consumption Expenditures (PCE) price index rose 2.3% year-over-year in March, while core PCE (excluding food and energy) climbed 2.6%—both above the Fed’s 2% target. Short-term inflation expectations, as measured by consumer surveys and market indicators like breakeven inflation rates, have also increased, while long-term expectations remain anchored—for now.
Maintaining that anchor is critical. Powell was explicit: if inflation expectations start to rise further and appear to lose credibility, the Fed may be forced to act, even at the expense of growth.
Policy Outlook: "Patience" with a Side of Readiness
Powell reiterated the Fed’s current position: interest rates will remain on hold for the time being, and any change in policy will be data-dependent. He framed the situation with a reference to the 1980s movie Ferris Bueller’s Day Off, saying:
“Life moves pretty fast.”
This remark metaphorically underscored the Fed’s approach: watch carefully, stay flexible, and prepare for rapid shifts in economic conditions. Powell also noted that while the Fed retains powerful tools—such as dollar swap lines and ample reserves—there is currently no need to deploy them.
Q&A Highlights: Trade Risks, Crypto, and Data Priorities
During the Q&A session following his speech, Powell addressed a range of topics that shed further light on the Fed’s thinking.
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Trade Policy: Powell admitted that tariffs present an unusual challenge—raising inflation while reducing growth—making it more difficult to meet the Fed’s mandates. He said economic improvement in 2025 may be limited, regardless of political developments.
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Cryptocurrency and Regulation: He acknowledged that crypto has entered the mainstream and that a regulatory framework, especially for stablecoins, is necessary. Some relaxation of banking regulations related to crypto might be feasible, but not at the cost of financial stability.
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Decision-Making Hierarchy: Powell described the Fed’s internal priority sequence as:
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Labor market data
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Inflation trends
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Global economic signals
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This was a subtle signal that the Fed may adjust its traditional inflation-first stance depending on how the labor market evolves.
Market Reaction: Risk-Off, But Orderly
Markets responded cautiously to Powell’s remarks:
| Asset Class | Reaction (April 16 close) | Interpretation |
|---|---|---|
| S&P 500 | ‑0.7% | Concerns over inflation-growth trade-off |
| 10-Year Treasury Yield | ‑8 basis points | Markets betting on longer hold period |
| U.S. Dollar Index | Slight decline | Reflecting trade and growth concerns |
Looking Ahead: What Could Shift the Fed’s Course?
The Fed remains on hold for now, but Powell’s message was clear: That pause depends on data. The following scenarios could lead to a shift:
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Further tariff hikes or retaliation from major trading partners (e.g., China or EU) could push headline inflation toward 2.7% or higher by Q3.
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If GDP slows to the low 1% range, the trade-off between inflation and employment will become more acute.
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The Fed could resume rate hikes (in 25-basis-point increments) if inflation expectations appear to settle above 2.5%.
Final Takeaway
Jerome Powell delivered a nuanced message on April 16: while the U.S. economy remains resilient, it is navigating a complex environment shaped by tariffs, inflation risks, and weakening growth. The Fed’s current “wait and see” stance is based on confidence in existing economic strength—but that could change rapidly if inflation expectations begin to drift.
The key takeaway?
The Fed is holding steady only as long as the data permits. Watch for upcoming CPI, PCE, ISM, and jobs reports—these will likely determine the Fed’s next move.
