Powell says tariffs could feed inflation
NEW YORK—Federal Reserve Chair Jerome Powell said it remains to be seen if the Trump administration’s tariff plans will prove to be inflationary, mapping out a checklist of things that could cause new import taxes to lead to more persistent price pressures.
“In a simple case where we know it’s a one-time thing, the textbook would say look through it,” with no need for the Fed to respond with tighter monetary policy, Powell said at a question-and-answer session during an economic forum in New York City.
“But you also want to be sure of a couple things,” he continued. “If it turns into a series of things … If the increases are larger, that would matter, and what really does matter is what is happening with longer-term inflation expectations. How persistent are the inflationary effects?”
“You want to look at all those things,” Powell said at the University of Chicago Booth School of Business forum. “And you want to remember the context, which is we came off a very high inflation and we haven’t fully returned to 2 percent on a sustainable basis. So you put all that into the mix.”
First time around
At the same time, Powell noted, the trade actions Trump took in his first term in the White House, far from being inflationary, caused global growth to slow and actually led the Fed to cut interest rates.
Powell spoke after a volatile week in which President Donald Trump imposed and then delayed 25 percent tariffs on major trading partners Mexico and Canada. Those levies are still slated to go into effect in early April and other tariffs on imports possibly could be coming. Even as Powell was due to speak, Trump mused about moving faster on other tariffs he has promised to enact.
On Thursday, Treasury Secretary Scott Bessent insisted the tariffs might cause some one-off price increases but would not show up as persistent inflation. He suggested the Fed’s “Team Transitory” should “get back together” and look at tariffs in the same way it did at inflation in 2021.
Bessent was referring to Powell and other Fed officials who expected that price pressures which began building early in the COVID-19 pandemic would dissipate largely on their own. Instead, inflation kept rising, with the Fed eventually approving the fastest rate hikes in a generation.
“Nothing is more transitory than tariffs if it’s a one-time price adjustment,” Bessent said. “Across the continuum, I’m not worried about inflation.”
