The Blubber

Federal Reserve Chair Jerome Powell said Friday that President Donald Trump’s newly announced tariffs are “larger than expected,” and the economic consequences—including elevated inflation and slower growth—will likely exceed initial forecasts. His remarks signaled the complex decisions facing the central bank in the coming months.

“We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation,” Powell told a gathering of business journalists in Arlington, Virginia. He warned that these twin risks challenge both of the Fed’s main goals: keeping inflation near 2% and maximizing employment.

Powell’s comments came as global stock markets continued their slide, with U.S. indexes now down about 10% since Trump revealed sweeping new tariffs on Wednesday. While Powell did not specifically reference the selloff, he acknowledged that the same uncertainty roiling investors is complicating decisions for the Fed and businesses alike. Markets dipped further following the release of his remarks.

The Fed chair said the central bank still has room to wait for more economic data before making any policy changes, but emphasized that policymakers would remain focused on keeping inflation expectations anchored—particularly if the tariffs cause more lasting price increases.

“Tariffs are highly likely to generate at least a temporary rise in inflation,” Powell said. “But it’s also possible the effects could be more persistent. Avoiding that outcome depends on the size of the shock, how long it lasts, and how firmly inflation expectations are anchored. It’s our job to make sure a one-time price jump doesn’t spiral into sustained inflation.”

While Powell stopped short of criticizing the administration, he acknowledged the Fed must react to the consequences of its decisions. Just weeks ago, central bankers believed the economy was in a “sweet spot” with low inflation and steady job growth.

Answering questions after his speech, Powell said, “Uncertainty is high. What we’ve learned is that the tariffs are higher than expected—more than almost any forecaster anticipated. It’s too early to know how this will all unfold.”

His remarks highlighted a growing tension between solid economic indicators—such as the 228,000 jobs added in March and a 4.2% unemployment rate—and “soft” data, including business sentiment surveys, that suggest a slowdown may be looming.

“We’re closely monitoring the contrast between the hard and soft data,” Powell said. “As the new policies and their economic impact become clearer, we’ll better understand their implications for the economy and for monetary policy.”

He concluded, “It’s now becoming clear that the tariff increases will be significantly larger than expected. The same is likely true for their economic effects—higher inflation and slower growth. For now, we’re in a good position to wait for greater clarity before making any policy adjustments.”

The Fed’s dilemma is complicated by rising costs paired with potential economic weakness—a situation that could become more volatile if trade tensions escalate further.

China, the U.S.’s largest trading partner, has already responded to Trump’s tariffs with its own 34% duties on American imports, export restrictions on rare minerals crucial to tech manufacturing, and bans on some U.S. agricultural goods, including poultry.

So far, the White House has downplayed the market downturn—the worst since the start of the COVID-19 pandemic—framing it as a necessary step toward long-term economic gains.

However, the retaliation from China and other countries could be one of the ways that Trump’s tariff strategy contributes to more persistent inflation, something Powell and his colleagues have warned about in recent weeks.