Fed policy remains appropriate; tariffs pose inflationary threat: Powell

Jerome Powell, Federal Reserve Chairman Jerome

Federal Reserve Chairman Jerome Powell affirmed on Wednesday that the central bank's current monetary policy remains well-suited to respond to any potential economic developments.

However, he warned that elevated tariffs could contribute to persistent inflationary pressures, posing a significant risk to the broader economic outlook.

During a press conference following the Fed’s decision to keep interest rates unchanged, Powell stated that the risks of rising unemployment and inflation have both increased. He noted that the current policy allows for an appropriate response to potential developments in the economic landscape.

Powell emphasized that the continued imposition of high tariffs is contributing to higher inflation, while slowing growth and increasing unemployment. Although the inflationary impact of tariffs may be short-term — reflecting a one-time shift in price levels — he cautioned that these effects could also persist over the longer term.

Tariffs are creating uncertainty around policymaking, which complicates the economic outlook, Powell said, adding that scenarios for a rate cut this year remain possible. However, other scenarios are also on the table due to the growing uncertainty surrounding economic expectations.

The Fed Chairman affirmed that interest rates are currently in a good position as the central bank awaits greater clarity on trade policy. He described the current monetary stance as “moderately restrictive”, which puts the Fed in a strong position to “wait and observe.”

Powell highlighted that there is no need to rush and that the Fed can afford to be patient, noting that the central bank is not in a position to take a preemptive stance. He acknowledged that it remains unclear what the appropriate policy responses should be based on incoming data.

Finally, he warned that achieving the Fed’s objectives could be delayed until next year due to the impact of tariffs, citing the significant uncertainty regarding the scope, timing, and duration of the measures. This delay, he added, could mean interest rates may remain elevated for longer than previously expected.