Powell Warns: "Tariff Impact Could Be Greater Than Expected" While Emphasizing Cautious Monetary Policy
On April 4, 2025, Federal Reserve Chair Jerome Powell delivered a significant speech on the U.S. economic outlook at the Society for Advancing Business Editing and Writing (SABEW) annual conference in Arlington, Virginia. The speech garnered considerable attention from financial markets and economic experts as it came immediately after President Trump's unexpected announcement of new tariff policies.
Concerns About the Economic Impact of Tariffs
Powell warned that the new tariff policies announced by President Trump on April 2 could have an "impact much greater than anticipated." He specifically pointed out two major economic consequences these tariffs might bring.
First, there's the possibility of increased inflation. Powell explained that as of February, PCE prices stood at 2.5% and core PCE prices at 2.8%, still above the Fed's 2% target. He cautioned that higher import prices due to tariffs could lead to broader price increases. While these effects might be temporary, he emphasized the importance of maintaining stable long-term inflation expectations.
Second, there's the risk of slowed economic growth. Powell noted that tariffs could provoke retaliatory measures from U.S. trading partners, potentially reducing American exports. He also expressed concern that increased uncertainty could undermine business and consumer confidence, negatively impacting economic growth.
The Fed's Cautious Approach
Powell indicated that it is "still too early" to determine the appropriate monetary policy direction in the current situation. He suggested that "the Fed will withhold rate adjustment decisions until the situation becomes clearer," emphasizing that they will closely monitor upcoming economic indicators and market reactions.
Powell explained that several uncertainty factors complicate the Fed's policy decisions:
- The details of the tariffs (scope, level, duration, etc.) are not yet fully clear
- The possibility and scale of retaliatory measures from trading partners
- The extent of tariff impacts on the real economy and financial markets
Despite these uncertainties, Powell added that the Fed would act independently from political pressure and take a cautious approach to achieve its dual goals of maximum employment and stable prices.
Trump's Pressure and Fed Independence
Meanwhile, President Donald Trump has urged Powell to cut rates immediately. Trump mentioned on social media that now is the "perfect time" for a rate cut, arguing that Powell should act without political considerations.
In response, Powell reaffirmed that the Fed would make decisions based on economic data and outlook, not political pressure. He emphasized that the Fed's independence is essential for economic stability and long-term growth.
Global Market Reactions and Outlook
Following Powell's speech, global financial markets showed mixed reactions. The U.S. stock market demonstrated volatility despite Powell's cautious attitude, due to concerns about tariffs, while the bond market saw strengthened preference for safe assets.
Economic experts are assessing the current situation as one with increased risk of "stagflation." Stagflation occurs when economic growth slows while inflation rises simultaneously, making central bank policy responses more challenging.
Future Challenges
Powell's speech clearly demonstrated the challenges facing the U.S. economy and the Fed's response direction. Particularly, it remains to be seen how effectively the Fed can promote economic stability amid increased uncertainty due to trade policy changes.
The actual impact of tariffs on inflation and economic growth will become clearer through economic indicators over the next few months, and the Fed is expected to adjust monetary policy based on this data. Powell emphasized that "the Fed's role is to prevent one-time price increases from becoming persistent inflation problems," reaffirming his commitment to long-term price stability.
It will be important to monitor how the interaction between trade policy and monetary policy will affect the U.S. and global economies, and how the Fed will find balance in this complex environment.
