Powell warns of economic consequences of tariffs

Powell warns of economic consequences of tariffs

Washington, D.C. - The comprehensive political changes of President Donald Trump, especially in relation to tariffs, represent an unprecedented challenge for the Federal Reserve, as Chairman Jerome Powell said on Wednesday.

unknown waters for the Federal Reserve

Powell emphasized: "These are very fundamental political changes. There is no modern experience on how to think about it." The customs increases announced by Trump significantly exceed expectations. The persistent uncertainty regarding tariffs could result in long -term economic damage. The tariffs push the economy in a direction that is characterized by weaker growth figures, higher unemployment and faster increasing inflation - everything at the same time. In this situation, the Federal Reserve is faced with a problem that has not experienced it for almost fifty years.

economic effects and market reactions

The Federal Reserve has the task of promoting full employment and keeping inflation in check. However, Trump's tariffs endanger both goals. However, current data show that the US economy is in an acceptable condition.

Future view of the Federal Reserve

Powell said that the best strategy of the Federal Reserve is currently to wait until the data clearly shows how the US economy reacts to Trump's policies. But experts agree: it is only a matter of time for Trump's tariffs heat inflation, increase unemployment and weaken economic growth, especially if the massive "mutual" tariffs that came into force on April 9th. Trump has postponed this historical increase in import taxes to July.

current tariffs and geopolitical tensions

The government has also introduced temporary exceptions for some electronic products. Trump has indicated that soon separate tariffs will follow semiconductors, pharmaceuticals, copper and wood.

expectations and challenges of the Federal Reserve

David Russell, global director of the market strategy for tradestation, commented: "Jerome Powell showed the borders.

The Federal Reserve could face a challenge that it has not experienced for decades. In the 1970s and early 1980s, the US economy was affected by high unemployment and double-digit inflation-a problematic combination known as "stagflation". At that time, the Federal Reserve under the direction of Paul Volcker provided the fight against inflation over growth, even if this caused economic pain.

strategies to combat stagflation

powell said that if stagflation was to become a reality, "we would consider how far the economy is removed from every goal and what different time frames would be expected to close these respective gaps." He emphasized that high unemployment or inflation rates can be harmful and painful for communities, families and companies.

Several members of the Federal Reserve said that the central bank should observe the perception of prices that worsened due to the surveys of the University of Michigan. It remains unclear when increasing inflation expectations could trigger measures of the Federal Reserve and which would be.

The search for clarity for monetary policy

Although inflation is now below the highest level of June 2022, it is slightly above the desired target of 2 %. The Federal Reserve has less reason to reduce interest rates again. However, most members seem to agree that it is best to wait for specific data.

"This is a difficult set of risks for monetary policy," said Cleveland Fed President Beth Hammack at an event in Columbus, Ohio. "In view of the starting point of the economy and since both sides of our mandate are under pressure, there is a strong argument for keeping monetary policy stable in order to balance the risks that emerge from further increasing inflation and a slowdown labor market."

"If clarity is difficult to achieve, waiting for additional data will help to determine the future course," she added.