Powell admits Americans will pay the price for Trump’s tariffs while refusing to promise rate relief despite the President’s demands.
At a Glance
- Federal Reserve Chairman Jerome Powell confirms tariffs will cause higher inflation and slower economic growth
- Powell contradicts Trump’s claim that foreign countries pay tariffs, stating Americans will face higher prices
- The Fed is adopting a “wait-and-see” approach before making any interest rate adjustments
- Powell warns of potential “stagflation” reminiscent of the economic troubles of the 1970s
Markets fell significantly as Powell spoke, with major indices dropping
Fed Chairman Plays Wait-and-See Game as Tariffs Threaten Economy
In what can only be described as a masterclass in bureaucratic fence-sitting, Federal Reserve Chairman Jerome Powell announced the Fed will do absolutely nothing about interest rates while Americans prepare to shoulder the burden of President Trump’s new tariff policies. Powell made it abundantly clear that the central bank is taking a “wait-and-see” approach despite acknowledging that these tariffs will lead to higher prices for everyday Americans. This contradicts the President’s repeated claims that foreign countries, not American consumers, pay these tariffs. So much for that economic theory.
Powell described Trump’s tariff changes as “unprecedented in modern history” – a diplomatic way of saying we’re in uncharted economic waters. The Fed Chairman carefully noted that the same policies creating market uncertainty “will include higher inflation and slower growth.” Translation: Americans will be paying more for everyday goods while economic growth stagnates. But don’t worry, folks – the Fed is positioned to “wait for greater clarity” while your grocery bills climb and your retirement accounts take a beating.
Stagflation Specter Looms Over Economy
Powell wasn’t shy about naming the economic boogeyman that has the Fed spooked: stagflation. For those who slept through economics class, that’s the ugly combination of high inflation and high unemployment that wreaked havoc on the American economy in the 1970s. The Chairman warned, “We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension.” Behind the Fed-speak, he’s telling us they might soon face an impossible choice between fighting inflation or preserving jobs – they can’t do both.
“These are very fundamental policy changes. There isn’t a modern experience of how to think about this.” – Jerome Powell.
While the Biden administration spent years driving inflation to painful highs through reckless spending, Trump’s new tariff regime – including the eye-popping 145% duty on Chinese imports – threatens to pour gasoline on the inflation fire. Markets reacted predictably to Powell’s remarks, with major indices taking a nosedive. Apparently, investors aren’t reassured by the Fed’s strategy of doing nothing while watching the economic house potentially burn down. Imagine that.
Powell Dodges Presidential Pressure
President Trump hasn’t been subtle about what he wants: interest rate cuts, and plenty of them. But Powell, in a rare display of central bank independence, refused to bow to the pressure. “I make it a practice not to respond to any elected officials comments, so I don’t want to be seen to be doing that. It’s just not appropriate for me,” Powell stated. Meanwhile, market analysts are reading between the lines and see trouble ahead for the administration’s economic agenda.
“Jerome Powell just laid down the law with Trump. It was a clear warning about stagflation, and a declaration that the Fed won’t enable the White House with rate cuts.” – David Russell.
Despite Powell’s insistence that the economy remains strong with a solid labor market, the Fed’s concerns about tariff-induced inflation are clear. While market expectations had been building for potential rate cuts totaling a full percentage point by year-end, Powell poured cold water on those hopes. Instead, he emphasized that the Fed’s “obligation is to keep longer-term inflation expectations well anchored” – suggesting they won’t rush to cut rates if doing so would worsen inflation from tariffs.
Divided Fed Faces Unprecedented Challenge
The Fed’s committee is split on how to respond to the tariff situation. Christopher Waller, a Fed governor, believes the impact will be temporary but expressed willingness to support rate cuts if the economy slows dramatically. Others like Neel Kashkari are more hawkish, focusing primarily on inflation concerns and resisting calls for rate cuts. This internal division mirrors the wider economic uncertainty as Americans brace for higher prices while hoping for relief that may not come.
With inflation already running above the Fed’s 2% target, Powell seems determined to avoid making any hasty moves that could worsen the situation. But his non-committal stance raises a troubling question: If tariffs do push America toward stagflation, will the Fed have waited too long to act? For now, Powell’s message to Americans facing rising prices and economic uncertainty amounts to little more than “wait and see” – hardly reassuring when your paycheck buys less each month while economic storm clouds gather on the horizon.
