Federal Reserve Chairman Jerome Powell said Wednesday that inflation driven by President Donald Trump’s tariff agenda could make it more difficult to achieve the Fed’s goal of lowering inflation.
Powell, speaking at a news conference after the Fed’s decision to hold interest rates steady, was asked several times about how tariffs might affect inflation and the overall economic landscape. He said there would be an impact but emphasized that there is still much uncertainty about the scope and scale of the tariffs.
Powell said the Fed was getting close to its goal of price stability last year, when inflation was running at about 2.5% for some time, but he acknowledged that the imposition of more tariffs could hamper its pursuit of its target.
“I do think with the arrival of the tariff inflation, further progress may be delayed,” he told reporters.
Powell noted that the Fed’s latest summary of economic projections does not show further progress in lowering inflation this year, which he said is largely due to the Fed’s expectations for tariff-driven inflation.
Inflation in the consumer price index has dropped from a 2022 peak of about 9% to 2.8%, according to the most recent report. The Fed’s goal is for inflation to run at 2%, a level it considers healthy.
From Wednesday’s summary of economic projections, the median official now expects inflation to clock in at 2.7% at the end of the year, up from the previous December 2024 estimate of 2.5%. The Federal Open Market Committee now expects inflation to finally fall to around 2% by 2027.
The Fed also projects that core inflation, which strips out volatile food and energy measures, will be at 2.8% by the end of the year — up from 2.5% when it did its last projection in December.
Still, despite understanding that some of the inflation coming down the line will be due to tariffs, Powell said it would be “very difficult to have a precise assessment of how much of inflation is coming from tariffs.”
Tariffs have been a major issue for the markets and for analysts looking to project what might happen economically in the coming months. Trump campaigned on aggressive tariffs, but many on Wall Street thought that might have just been a negotiating tactic.
However, two months into office, Trump has already shown that he is fine with letting tariffs go into effect. He applied tariffs on Mexico, Canada, and China, causing markets to roil and stoking uncertainty among investors.
Some of that uncertainty has played into declines in the stock market.
While the Dow Jones Industrial Average pared back some losses this past week, it has declined more than 6% in the past month. The index has been flat over the past six months. The tech-heavy Nasdaq has dropped about 12% over the past month.
Generalized anxiety on Wall Street is captured by the Chicago Board Options Exchange Volatility Index, better known as VIX but also as the “fear index.” Notably, the VIX was up about 36% over the past month.
In addition to the tariffs on Canada, Mexico, and China, the administration has said that it is pushing forward with reciprocal tariffs in early April.
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The idea is that the United States should be able to unilaterally impose tariffs equivalent to any tariffs placed by other countries on the U.S. So if one country has a 10% tariff on U.S. goods, Trump could simply match that and apply a 10% tariff against that country so the two are at parity.
Reciprocal tariffs would be tailored to each trading partner to combat unfair trade practices, according to the administration.
