Jerome Powell, Chair of the Federal Reserve, voiced the same worries about economic uncertainty that’s gripping America’s decision-makers in a recent testimony. He told us that this uncertainty should be “a lot lower” by next year, a sign of optimism for more stable times ahead. Powell’s remarks come at a remarkable time. The Federal Reserve meets next on May 6-7 and will continue to reevaluate interest rate policy as tariffs continue to escalate under the Trump administration.
Just last week, the Trump administration announced huge increases on existing tariffs. This dollar figure makes this move the largest single change to U.S. trade policy in over 200 years. A new 10% tariff on all U.S. imports becomes effective this Saturday. Get ready for even higher tariffs arriving on April 9th! Even the bulls at JPMorgan are sounding the alarm for the economy. They project a 60% probability of a global recession if these tariffs remain permanent. Powell emphasized that the Federal Reserve’s best course of action in response to the ongoing turmoil is to maintain interest rates at current levels for an extended period.
Today, Fed officials have shifted to a more cautious stance on interest rates, deciding to keep borrowing costs where they are last month. This decision reflects the Fed’s desire to monitor inflation trends and assess how Trump’s major policy shifts impact economic data. Powell reiterated the need to monitor the development of economic signs going forward. In our discussion, he stated, “We’re going to need to see how this sorts itself out.”
Addressing worries that the tight labor market has contributed to double-digit inflation, Powell admitted the tricky line the Fed needs to walk. He warned that both inflation and unemployment would come under upward pressure as a result of the new tariffs. We are confronted with a sharply uncertain horizon, with increased probabilities of both rising unemployment and surging inflation,” he stated. As Philip Jefferson, the Fed’s Vice Chair, said at the time. He warned that if the uncertainty persists or escalates, economic activity might be hampered.
To compound matters, consumer confidence just tanked to its lowest point since January 2021. Meanwhile, small-business uncertainty skyrocketed in February, reaching its second-highest point on record dating back to 1973. Collectively these advances reflect climbing worries from industries, small businesses and the American public about the harmful broader economic effects of the Trump administration’s tariffs.
Powell’s past two comments have been the most colorful to date on the economic situation created by the administration’s new trade policies. Indeed, he affirmed that tariffs are sure to produce a temporary increase in inflation. He cautioned that their impacts may be more permanent. Tariffs are almost certain to create a temporary increase in inflation. What he mentioned next is perhaps the most troubling aspect of the three, because their effects can become permanent.
The Fed is still in a difficult spot, trying to thread the needle in a world of opposite forces. Kathy Bostjancic, an economist, underlined the Federal Reserve’s difficulty in controlling inflation that is getting out of control. Simultaneously, they’re preparing for an anticipated economic downturn.
As lawmakers prepare for their next hearing, Powell reiterated the need to watch critical economic indicators like a hawk. The real impacts of the policies, he said, should be very apparent and evident. First, the Fed needs to evaluate how much inflation and employment deviates from their targets. Better yet, they should have to estimate how long it will take them to fix the problems.