Federal Reserve Chair Jerome Powell warned that the central bank could face difficult trade-offs in trying to cushion the U.S. economy from the fallout of President Trump’s trade war.
Federal Reserve Chair Jerome Powell said tariffs announced by President Trump were larger than anticipated and ‘highly likely to generate at least a temporary rise in inflation.’ Photo: Kamil Krzaczynski/AFP/Getty Images
Large tariff increases that push up consumer prices while weakening economic activity would put the central bank in the uncomfortable position of choosing whether to focus on its goal of promoting low inflation or its mandate to foster a healthy labor market, Powell said in remarks prepared for delivery in Chicago on Wednesday.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Powell said.
If that happens, the Fed would weigh how far inflation is from its 2% target, how weak the labor market becomes, and how long it could take for both of those variables to improve when determining how to adjust interest rates.
“We would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close,” Powell said.
The Fed chair reiterated that tariffs “are highly likely to generate at least a temporary rise in inflation,” a statement he made earlier this month. He also repeated his view that the central bank doesn’t need to rush to lower interest rates while nodding to a fluid economic outlook that has been whipped around by unpredictable trade policy announcements.
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