U.S. Federal Reserve Chair Jerome Powell stated that President Trump's tariff increases could delay progress in lowering inflation this year. However, the Fed's base case remains that any price impacts related to tariffs will be temporary and will work through the economy quickly.
During a news conference following the Fed's recent meeting, Powell mentioned that it was too early to assess whether the Fed needed to overlook the inflationary effects of higher tariffs. He indicated that it would be challenging to discern how much of the increase in goods prices is due to tariffs versus other factors.
Powell noted a growing concern about inflation from business and household surveys, highlighting an uptick in short-term inflation expectations, while long-term expectations appear to be stable.
He remarked, "I do think with the arrival of tariff inflation, further progress may be delayed" in achieving the Fed's target of a 2% annual inflation rate. The Fed's quarterly economic projections indicate that there is unlikely to be significant downward movement on inflation this year, primarily due to the effects of tariffs.
Since taking office, Trump has sought to significantly alter global trade dynamics, imposing a 20% increase in import duties on goods from China and 25% tariffs on goods from Canada and Mexico that do not comply with the U.S.-Mexico-Canada Agreement. He has also reinstated 25% tariffs on global steel and aluminum imports and plans to implement further measures to counter the import taxes and non-tariff barriers of all trading partner countries.
The implications of Trump's tariff strategy remain unclear, depending largely on how quickly any related inflation permeates the economy and whether inflation expectations remain stable.
Powell acknowledged that the recent strong inflation readings over the past two months were unexpected and might be attributable to consumers buying in anticipation of tariffs. The Fed will analyze these effects, though there is considerable "noise" surrounding the announcements of both new and delayed tariffs.
Ultimately, Powell concluded that it is too soon to observe substantial effects in economic data stemming from the tariffs.