Fed Chair Powell Expects 'Higher Inflation' Amid Trump’s Tariff Policy

What Happened?

Officials are increasing their predictions regarding economic uncertainty amid President Donald Trump’s policy changes and his moves around tariffs.

Federal Reserve Chairman, Jerome Powell, announced Wednesday that the central bank will 'wait for greater clarity' before considering future interest rate cuts.

Powell spoke at the Economic Club of Chicago about his outlook for the U.S.

He expects President Trump’s tariffs to generate 'higher inflation and slower growth.'

'These are very fundamental policy changes,' Powell said. 'There isn’t a modern experience for how to think about this.'

Powell's remarks come as recently released data revealed U.S. consumer sentiment declined in April, as 12-month inflation expectations surged.

The University of Michigan Surveys of Consumers said its Consumer Sentiment Index plunged 11% to 50.8 this month from a final reading of 57.0 in March.

It marks the second-lowest reading on records going back to 1952.

Consumers now worry about the chances of an economic recession.

Why it Matters

A dilemma for the Fed surrounding these unpredictable trends is that it holds an obligation to keep prices stable while maximizing employment.

'We may find ourselves in the challenging scenario, in which our dual-mandate goals are in tension,' Powell stated.

Although Trump suspended universal tariffs for 90 days, he maintained a 10% blanket duty on almost all U.S. imports.

Automotives, steel, and aluminum levies of 25% were also kept in place.

China hiked its levies to 125% on U.S. imports, effectively shutting out the world's biggest economy in a major escalation of trade war.

The ongoing battle between the U.S. and China threatens to rip apart trade ties between the world’s two largest economies.

Treasury Secretary, Scott Bessent, had reportedly argued that the Fed should consider any inflation produced by tariffs to be temporary.

He and others have since changed their stance by leaving many options open, as reported by Yahoo Finance.

How it Affects You

Many officials reportedly agree that it’s in the best interests to wait for more evidence before pursuing rate cuts.

Trump's pursuit to rectify trade practices has increased the likelihood of a 2025 recession.

The shock from tariffs could potentially drive growth in the U.S. down by two percentage points this year.

Powell reiterated previous Fed chair points that growth in the U.S. federal debt needs to be addressed.

It will take a bipartisan effort to address and tackle a more than $1.3 trillion budget deficit.

These are all concerns that consumers and business owners are monitoring, in hopes of shifting its negative outlook on the economic future of the U.S.