Fed Jerome Powell Warns: Tariffs to Boost Inflation, Fed Holds Rates Steady

• Powell says the Fed won’t rush to cut rates as it waits to see the full impact of Trump’s tariffs.
• New tariffs are expected to raise inflation and slow growth, adding pressure to an already uncertain outlook.
• Despite political pressure, Powell emphasized the Fed’s focus is on keeping inflation expectations anchored.

Federal Reserve Chair Jerome Powell delivered a cautious message Friday, signaling that the Fed won’t rush to adjust interest rates just yet, not until it sees how President Donald Trump’s sweeping new tariffs shake out.

Speaking in Arlington, Va., Powell pointed to “a highly uncertain outlook,” thanks to the administration’s fresh round of levies announced earlier this week. While the economy’s still looking pretty solid at the moment, he warned that inflation pressures and slower growth are now very real risks.

“We’re well positioned to wait for greater clarity,” Powell said. “It’s too soon to say what the right path forward is for policy.”

Inflation in Focus as Tariffs Threaten Price Stability

Powell made it clear—containing inflation is now top priority. He emphasized the Fed’s obligation to keep long-term inflation expectations in check, especially if Trump’s tariffs cause more than just a temporary bump in prices. And with markets already bracing for a flurry of rate cuts, Powell’s measured tone suggested the central bank might not be ready to follow that lead just yet.

“The announced tariffs were significantly larger than expected,” he noted. “So, too, could be their economic effects.”

Even though Powell refrained from speculating on future rate changes, the bond market is already betting big: traders are pricing in a full percentage point of cuts by year’s end.

Trump Pressure, Market Volatility Cloud the Picture

President Trump earlier in the day had taken to Truth Social, urging Powell to cut rates and stop “playing politics.” The president cited falling energy and food prices and claimed victory on jobs, saying this was the perfect time to act. But Powell sidestepped the political heat, sticking to policy basics.

“I make it a practice not to respond to elected officials,” Powell said when asked directly about Trump’s post.

Wall Street hasn’t taken the tariff headlines lightly. Stocks have been hammered since the announcements, and yields on U.S. Treasuries have dipped below 4% as investors run for cover.

Despite the turbulence, Powell reminded listeners that the economy’s not in crisis—yet. The labor market remains strong, but consumer sentiment is showing cracks. Surveys suggest Americans are growing nervous about inflation and skeptical about the outlook.

“The economy is still in a good place,” Powell said. “But we’re watching carefully.”