Fed Chair signals caution in face of new economic risks, as markets bet on rate cuts
Federal Reserve Chair Jerome Powell has warned that President Donald Trump’s sweeping new tariffs are likely to lift inflation and weaken economic growth, signalling that the central bank will maintain a wait-and-see approach to interest rates amid a surge in policy uncertainty.
Speaking at the Society for Advancing Business Editing and Writing (SABEW) conference in Arlington, Virginia on Friday, Powell acknowledged that the US economy remains “in a good place” for now—with steady job growth and inflation moderating from its pandemic-era highs. But he stressed that recent developments, particularly the scale and unpredictability of new trade policy, have sharply raised the risks ahead.
“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” Powell said. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
The Fed is currently holding its benchmark interest rate steady at 4.3% and, for now, Powell indicated the central bank will remain on pause while it assesses the fallout from Trump’s trade measures.
“We are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” he said. “It is too soon to say what will be the appropriate path for monetary policy.”
Focus on inflation
Powell’s comments come just days after Trump unveiled a 20% reciprocal tariff on nearly all EU exports and a 34% tariff on Chinese goods—moves that triggered immediate retaliation from Beijing and warnings from Brussels. Financial markets have been roiled, with US and European equities sliding sharply and bond traders now pricing in several Fed rate cuts by year-end.
But Powell’s speech, while acknowledging the potential for slower growth, focused more squarely on inflation.
Inflation has cooled substantially from its peak in 2022, but progress has stalled in recent months. The Fed’s preferred core PCE inflation measure was running at 2.8% in February, still well above its 2% target.
“While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent,” Powell said. “Avoiding that outcome would depend on keeping longer-term inflation expectations well anchored.”
Powell rejects political pressure
The Fed’s cautious tone stands in contrast to calls from the White House for immediate rate cuts. On his social media platform Truth Social, President Trump urged Powell to “stop playing politics” and cut interest rates, citing falling energy prices.
Powell declined to directly respond to the remarks, saying only: “I make it a practice not to respond to any elected officials’ comments … it’s just not appropriate for me.”
Labour market still solid, but uncertainty rising
The US economy added 228,000 jobs in March, according to data released on Friday, and the unemployment rate ticked up slightly to 4.2%. Powell described the labour market as “broadly in balance,” with moderating job growth and low layoffs helping to keep inflation pressures contained on the employment side.
However, he noted that both business and consumer surveys point to rising anxiety about the outlook—citing “dimming expectations” and “higher uncertainty,” particularly around trade.
Powell also said the Fed was closely watching for signs of broader disinflationary or confidence effects from the new tariffs, but that these would take time to filter through.
“There’s a lot of waiting and seeing going on, including by us,” he said during a Q&A. “And that just seems like the right thing to do in this period of uncertainty.”
Tariffs cast shadow over outlook
Powell’s speech marks one of the clearest acknowledgments yet from the Fed that the Trump administration’s trade policy could meaningfully alter the path of the US economy. While previous Fed statements had often downplayed tariff impacts as short-term and “transitory,” Friday’s remarks suggest a more durable concern—particularly if retaliatory measures escalate and confidence continues to erode.
Markets have interpreted the economic risks as increasing the likelihood of interest rate cuts. According to CME FedWatch data, futures now imply a more than 70% chance of a rate cut by June, and pricing reflects expectations for up to five cuts by the end of 2025.
