Federal Reserve Chair Jerome Powell on Friday appeared to back away from a “base case” view that inflation from President Trump’s new tariffs could be transitory, saying that “it is also possible that the effects could be more persistent” as the economy digests “significantly larger-than-expected” trade duties.
Trump, at the same time, turned up the pressure on Powell, calling on him to lower rates.
“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly,” Trump posted on social media, adding, “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”
Powell made it clear during his remarks at an event in Arlington, Va., that the Fed isn’t in a hurry to take any action on rates due to many uncertainties, saying, “It is too soon to say what will be the appropriate path for monetary policy.”
But because it is now clear Trump’s planned tariffs are exceeding expectations, he added, “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
While the size and duration of those effects “remain uncertain,” the inflation impact has the potential to be longer lasting, he noted.
Read more: What Trump’s tariffs mean for the economy and your wallet
“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.”
Federal Reserve Chair Jerome Powell speaks during a March 19 news conference in Washington. (AP Photo/Jacquelyn Martin) ·ASSOCIATED PRESS
The acknowledgement that inflation has the potential to be more persistent differs from a stance that Powell took last month in a press conference with reporters, where he said that his “base case” was that any extra inflation from Trump’s slate of tariffs would be “transitory.”
That transitory stance aligned with a view also expressed earlier by Treasury Secretary Scott Bessent.
Trump certainly made Powell’s job that much more difficult this week as he unveiled the steepest tariffs in more than 100 years.
Trump’s tariff rollout this week also took markets by surprise, spurring the worst one-day rout in US stocks since the start of the 2020 COVID-19 crisis in March 2020. Stocks fell again Friday, deepening the market turmoil.
Economists scrambled to revise their forecasts in ways that present twin challenges for the central bank: higher inflation and slower growth. Maybe, as some economists said, a US recession.
Traders reacted by boosting the number of interest rate cuts they expect to see from the central bank this year to four, as they bet recessionary worries will outweigh concerns about rising prices. They expect the first cut in June.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
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A new labor report released Friday didn’t change those market expectations. Data from the Bureau of Labor Statistics showed 228,000 new jobs were created in March, more than the 140,000 expected by economists. The unemployment rate rose to 4.2% from the 4.1% seen in the prior month.
Such a solid report certainly is not going to prompt any quick actions from the central bank, according to market observers.
“This type of job report will not favor any kind of hurried cuts,” said EY economist Gregory Daco.
Powell reinforced that wait-and-see stance Friday, saying in his speech that “we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.”
Some of his colleagues this week sounded a similar note. Philip Jefferson, vice chair of the Federal Reserve, said Thursday there is “no need to be in a hurry” to make adjustments to rates.
Fed governor Lisa Cook said Thursday that tariff-related price increases and rising inflation expectations could argue for maintaining a “restrictive stance” on rates for longer to reduce the risk of inflation expectations becoming unanchored.
There is now widespread disagreement among analysts on the Fed’s path.
Morgan Stanley said on Thursday it expects the Fed will not cut rates at all this year due to potential elevated inflation. Evercore said the likelihood of no cuts all the way up to more than five cuts in a recession are all roughly equal, although the firm’s base case is two to three.
Powell on Friday acknowledged that progress toward the Fed’s 2% inflation goal “has slowed,” citing a key gauge that was still at 2.8% in a recent reading.
And “looking ahead, higher tariffs will be working their way through our economy and are likely to raise inflation in coming quarters.”
The central bank’s job, he stressed, is to ensure that a one-time increase in prices “does not become an ongoing inflation problem.”
Trump’s renewed comments about Fed rates Friday follow a period when he had softened his criticisms of the Fed’s monetary policy decisions and even made it clear he doesn’t intend to fire Powell, someone he criticized repeatedly during his first term.
Bessent and other Trump aides have repeatedly said that the president is not focused on the Fed and is instead trying to bring down 10-year Treasury yields.
Powell has said he will not step down as chair before his term is up in May 2026, arguing that his removal is “not permitted by law.”
He repeated that Friday during a question and answer session with journalists: “I fully intend to serve all of my term.”
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