Tariffs: Trump Policies Risk Inflation, Slower Growth, Powell Says
Federal Reserve Chairman Jerome Powell recently shared his thoughts on President Trump’s tariffs at the annual Society for Advancing Business Editing and Writing conference. In his prepared remarks on Friday, Powell indicated that the tariffs are proving to be more impactful than initially anticipated, raising concerns about potential increases in inflation and a slowdown in economic growth.
Key takeaways from Powell’s speech
Powell emphasized that it’s “too soon to say what will be the appropriate path for monetary policy” going forward.
He noted that the Fed is in a good position to “wait for greater clarity before considering policy adjustments,” suggesting a cautious and measured approach as they assess the economic landscape.
Specifically addressing tariffs, Powell stated they are “likely to raise inflation in coming quarters,” and warned that “more persistent effects [are] possible” if the trade disputes continue.
He further clarified, “Becoming clear that tariff increases will be significantly larger than expected; same is true of economic effects,” highlighting the growing realization of the tariffs’ significant impact.
On a more positive note, Powell mentioned that “most measures of long-term inflation remain well-anchored,” indicating some stability in longer-term inflation expectations.
However, he stressed the “Fed’s obligation is to make certain that one-time increase in price levels doesn’t become an ongoing inflation problem,” underscoring the central bank’s vigilance against persistent inflation.
Looking at the current economic situation, Powell pointed out that “data show solid growth, labor market in balance, inflation much closer to, but still above, 2% goal,” painting a picture of a generally healthy, albeit slightly above target, inflation environment.
Nevertheless, he acknowledged that “surveys show dimming expectations, higher uncertainty due to new federal policies, especially trade,” indicating that business sentiment is being negatively affected by the current policy environment.
Powell also mentioned that the “Fed is closely watching tension between hard and soft data,” suggesting they are carefully analyzing both concrete economic figures and more subjective survey data to get a complete picture.
Reassuringly, he noted that the “unemployment rate [is] still in low range, job market not a source of inflation,” suggesting the labor market remains strong and is not currently contributing to inflationary pressures.
Finally, Powell conceded that “progress toward 2% inflation goal has slowed,” implying that achieving the Fed’s inflation target may take longer than previously anticipated.
Market reaction to Powell’s speech
Interestingly, despite these remarks, the US Dollar (USD) maintained its strength in the market. As of the latest update, the USD Index showed a 0.7% increase for the day, reaching 102.65.
US Dollar PRICE Today
Here’s a snapshot of the US Dollar’s performance against major currencies today. The table below illustrates the percentage change, revealing that the US Dollar showed the strongest gains against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.65% | 1.33% | -0.15% | 0.85% | 4.87% | 3.69% | -0.36% | |
| EUR | -0.65% | 0.72% | -0.78% | 0.27% | 4.20% | 3.07% | -0.95% | |
| GBP | -1.33% | -0.72% | -1.49% | -0.47% | 3.48% | 2.33% | -1.66% | |
| JPY | 0.15% | 0.78% | 1.49% | 0.98% | 4.98% | 3.75% | -0.22% | |
| CAD | -0.85% | -0.27% | 0.47% | -0.98% | 3.93% | 2.78% | -1.19% | |
| AUD | -4.87% | -4.20% | -3.48% | -4.98% | -3.93% | -1.11% | -4.97% | |
| NZD | -3.69% | -3.07% | -2.33% | -3.75% | -2.78% | 1.11% | -3.90% | |
| CHF | 0.36% | 0.95% | 1.66% | 0.22% | 1.19% | 4.97% | 3.90% |
To understand the table, pick a currency from the left column (the base currency) and another from the top row (the quote currency). The percentage in their intersection shows the change for the base currency against the quote currency. For example, looking at the US Dollar row and Japanese Yen column gives you the percentage change for USD/JPY.
Tariffs FAQs
What exactly are tariffs? Essentially, they’re customs duties imposed on specific imported goods or categories. The main goal of tariffs is to give local businesses a competitive edge by making imported goods pricier, thus favoring domestically produced alternatives. They are a key tool in protectionist trade policies, alongside other measures like trade barriers and import quotas.
How do tariffs differ from taxes? While both tariffs and taxes generate revenue for governments to fund public services, they operate differently. Tariffs are paid upfront when goods enter a country, at the port of entry. Taxes, on the other hand, are usually paid at the point of purchase. Furthermore, taxes are levied on individuals and businesses, while tariffs are specifically paid by importers who bring goods into the country.
Are tariffs beneficial or harmful? Economists are divided on this. Some argue that tariffs are essential to protect domestic industries and correct trade imbalances. Others, however, view them as detrimental, fearing they can lead to higher prices in the long run and spark damaging trade wars as countries retaliate with their own tariffs.
What’s Trump’s stance on tariffs? Leading up to the 2024 presidential election, Donald Trump clearly stated his intention to use tariffs to bolster the US economy and support American producers. In 2024, a significant portion of US imports—42%—came from Mexico, China, and Canada, with Mexico being the largest exporter at $466.6 billion, according to US Census Bureau data. Consequently, Trump plans to target these three nations with tariffs. He also intends to use the tariff revenue to reduce personal income taxes.
