Federal Reserve Chair Jerome Powell warned that President Trump's recent tariffs could result in higher inflation and reduced economic growth, complicating the Fed's ability to manage interest rates. The tariffs, particularly hefty rates on Chinese goods, pose challenges to achieving the Fed's inflation target while maintaining a strong labor market. Following Powell's remarks, stock markets reacted sharply, with significant drops in major indexes. Powell emphasized that the central bank might face a scenario where it must balance its dual mandates of controlling inflation and supporting employment.
Stocks tanked after Federal Reserve Chair Jerome Powell said President Trump's surprisingly stiff tariffs could keep inflation higher for longer than previously expected, forcing the central bank to keep interest rates high.
Avoiding that outcome will depend on the size of the effects, on how long it takes for them to pass through fully to prices, and, ultimately, on keeping longer-term inflation expectations well anchored.
Powell added that the tariffs threaten to pose a "challenging scenario" that could force central bankers to choose between tamping down inflation and propping up the labor market.
We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension.
Collection
[
|
...
]