The main news topic on everyone’s minds this week—tariffs—took center stage during Federal Reserve Chair Jerome Powell’s speech Friday morning in Arlington, Virginia.
More than initially expected, Trump’s tariffs are likely to trigger even higher inflation and slower growth, warned Federal Reserve Chair Jerome H. Powell
“While uncertainty remains elevated, it is now becoming clear that tariff increases will be significantly larger than expected—and the same is likely to be true of economic effects, which will include higher inflation and slower growth,” Powell said. “While tariffs are highly likely to generate at least a temporary rise in inflation, it’s also possible that the effects could be more persistent.”
With these tariffs, there will be risks for higher unemployment and higher inflation, according to Powell who said the dual mandate goals are “in tension, or they may be.”
With the next Federal Open Market Committee (FOMC) meeting coming up in a little over a month, the Fed is thinking ahead, but they are very much in a “wait and see” period, likely meaning no immediate rate cuts.
“Inflation is going to be moving up and growth is going to be slowing, but to me, it’s not clear at this time what the appropriate path for monetary policy will be,” he said. “We’re going to need to wait and see how this plays out before we can start to make those adjustments.
Right before Powell’s speech, Trump said, “This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates.” In that same Truth Social post, Trump noted that energy prices, interest rates and inflation are down—even eggs are down 69%, he added.
Understanding the uncertainty that’s weighing on people, Powell acknowledged the likelihood of a recession outside forecasters have raised, “albeit from very low levels.” Powell said he realizes that the uncertainty is high, adding that the tariffs were higher than almost all forecasters predicted.
Powell said he is in contact with central bankers around the world and they meet regularly. When not meeting and talking regularly, they text each other, but he joked about the existence of a group chat, as he “is not at liberty to say.”
Addressing the housing shortage, Powell said we simply haven’t kept up with the demand and the shortage has been alive since before the pandemic.
“There were very low mortgage rates during the pandemic and people are kind of locked in since it would be expensive to move, but that will, of course, wear out over time,” he said.
The new-build market will face cost pressures as well, he added, due to imported materials and labor that has been “traditionally immigrant labor.”
“Even once these short term things happen, we’re still going to have not enough houses,” he said. “I think for a long time, we’re still going to see upward pressure on housing prices—maybe until population growth slows, or until we catch up.”
Asked about the one year left in his term, Powell said “he fully intends” to serve all of his term.
On a lighter note, Powell answered a question about his fashion choices, admitting his decision to wear purple ties started due to his preference for the color, but changed into a decision to remain “strictly nonpolitical.”
