How Trump's New Tariffs Could Impact Inflation and Economic Growth
Federal Reserve's Response to Tariffs
Arlington (US): According to Federal Reserve Chair Jerome Powell, the new tariffs introduced by the Trump administration are expected to contribute to rising inflation and a slowdown in economic growth. In a statement released on Friday, Powell emphasized that the economic impact of these tariffs is proving to be more significant than initially anticipated.
He noted that the import taxes are likely to cause a temporary increase in inflation, with the possibility of longer-lasting effects. Powell stated, “Our responsibility is to ensure that a one-time price increase does not evolve into a persistent inflation issue.”
His comments indicate that the Federal Reserve may maintain its benchmark interest rate around 4.3% in the near future, which could disappoint investors who were hoping for multiple rate cuts this year following the tariff announcement.
Economists predict that these tariffs could hinder economic growth, potentially affect job creation, and drive prices higher. In response, the Fed might consider lowering rates to stimulate the economy or keeping them steady—or even increasing them—to tackle inflation. Powell's statements suggest a primary focus on managing inflation.
These remarks come shortly after President Trump announced extensive tariffs that have disrupted the global market, elicited retaliatory actions from China, and caused stock prices to drop significantly both in the US and internationally.
The combination of slower growth and rising prices presents a challenging scenario for the Federal Reserve. Typically, the central bank would lower interest rates to encourage borrowing and economic activity during periods of slow growth, while it would raise rates to curb spending and inflation.
Kathy Bostjancic, chief economist at Nationwide, remarked, “The Fed is in a difficult position with inflation expected to rise and economic growth slowing.”
On a positive note, the government reported an increase in hiring for March, with 228,000 new jobs created, although the unemployment rate rose slightly to 4.2% from 4.1%.
However, these employment figures reflect hiring trends from mid-March, prior to the full impact of the tariffs becoming evident. The uncertainty surrounding the tariffs may also deter businesses from investing and hiring in the upcoming months.