Trump tariffs: Fed chief Jerome Powell delivers stark warning

US Federal Reserve Chair Jerome Powell delivered a stark warning on Wednesday, saying President Donald Trump’s tariff-driven trade policy risks pushing inflation higher and slowing growth—setting up a potential clash between the Fed’s twin goals of stable prices and full employment.
Speaking at the Economic Club of Chicago, Powell said the central bank remains in wait-and-see mode for now, but acknowledged that tariffs are already complicating the Fed’s policy outlook. “Tariffs are highly likely to generate at least a temporary rise in inflation,” Powell said, adding that the inflationary effects “could also be more persistent.”
Markets didn’t like what they heard. All three major Wall Street indices dropped sharply, led by a selloff in tech stocks, as investors interpreted Powell’s tone as more hawkish than expected. “People were expecting Powell to be neutral and he was hawkish instead,” said Jim Carroll, senior wealth advisor at Ballast Rock.
The Fed’s challenge, Powell explained, is balancing its dual mandate—price stability and maximum employment—at a time when tariffs threaten to drive up costs while dragging on growth. “We could find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” he said.
Trump’s erratic trade policy has left global markets on edge and businesses without clear direction. The resulting uncertainty has driven volatility to levels not seen since the pandemic. Powell noted, “You’ll probably see continued volatility… markets are functioning kind of as you would expect them to in this time of high uncertainty.”
Most economists agree tariffs act as a tax on consumers and a brake on growth. Powell echoed those concerns, saying tariffs were “likely to move us away from our goals.” With inflation expectations creeping up and growth projections falling, the Fed may soon face tough decisions.
“The data in hand so far suggest that growth has slowed in the first quarter from last year’s solid pace,” Powell said. A rush of imports to beat tariffs may also distort first-quarter GDP figures.
Still, Powell made clear that the Fed is not rushing to intervene. “For the time being, we are well positioned to wait for greater clarity,” he said, suggesting no immediate changes to the Fed’s current rate of 4.25%-4.50%. Futures markets currently put the odds of a rate pause in May at about 85%.
Despite inflation risks, Powell signaled no plans for a so-called “Fed put” to support markets. “Markets are functioning... as you would expect them to,” he said flatly, pushing back on any expectations of a bailout.
The market reaction was swift. Gold spiked, and bond yields dropped as investors sought safer assets. “He’s confirming what investors have been worried about,” said Sam Stovall of CFRA Research. “Slowing growth and stubborn inflation. It’s an open-ended situation.”
For Powell, it’s a matter of law and economics. He reaffirmed the Fed’s independence from political influence, saying policy will be based on economic data—not political pressure.
But with Trump’s tariff policy still shifting, and little clarity in sight, the Fed’s path remains murky. As Powell summed it up, “We’re kind of drifting… operating day-to-day on news flows.”
(With inputs from agencies)