Trump's tariff strategy could trigger inflation, warns Powell
US Federal Reserve Chair Jerome Powell has issued a stark warning about the potential long-term effects of President Trump's trade policies, particularly the tariffs. According to Powell, these policies pose a significant risk to inflation and could slow economic growth in the United States.
Powell's concerns are based on the delayed impact of tariffs on consumer prices, despite some recent declines in producer-price inflation. The Congressional Budget Office (CBO) projects that tariffs could reduce U.S. GDP by about 0.6% over a 10-year horizon, indicating slightly weaker economic growth attributable to tariffs and retaliatory measures by other countries.
The tariffs have also raised significant revenue, estimated to potentially reach $300 billion by the end of the year. However, this comes at a cost, as the tariffs are effectively a tax on imports that may ultimately be passed on to American consumers, raising consumer prices over time.
Financial experts and the Fed express concern that even if immediate inflation due to tariffs appears muted, there is a risk of inflationary pressure building in the medium to long term because businesses might eventually pass on those costs.
The tariffs have increased uncertainties in trade policy, which J.P. Morgan economists link to a higher risk of a global recession. This trade policy uncertainty, combined with the tariffs, is dampening expectations for real U.S. GDP growth in 2025.
Some sectors, such as steel and aluminum, have seen domestic price increases due to tariffs on imports, impacting downstream goods' prices like autos and canned drinks.
Powell's warning highlights the potential for prolonged inflation due to President Trump's trade policies. At an event in Chicago, he stated that the economic effects of the tariffs could also be more persistent and lead to prolonged inflation.
The Federal Reserve's next interest rate decision is due in May. However, it is generally expected that the central bank will not touch the interest rate at its next meeting. Despite this, Powell's statements indicate that the economic impact of the tariffs could be significant.
Powell's warning comes after his Fed colleague Christopher Waller had previously warned of significant consequences for the American economy. The announced tariff increases are expected to lead to at least a temporary increase in inflation, according to Powell.
President Trump has urged Jerome Powell to lower interest rates, but Powell's job, as he stated, is to prevent a continuous inflation process. The economic effects of the tariffs, as described by Powell, include slower growth and potential for prolonged inflation.
Sources:
- Komonews, 2025-07-26
- J.P. Morgan Global Research, 2025-07-17
- Politico, 2025-07-10
- The Federal Reserve Chair Jerome Powell has voiced concerns about the potential long-term effects of President Trump's trade policies, stating that they pose a significant risk to inflation and could slow economic growth.
- According to financial experts and the Fed, even if immediate inflation due to tariffs seems muted, there is a risk of inflationary pressure building in the medium to long term because businesses might eventually pass on costs associated with tariffs.
- The economic effects of the tariffs, as described by Jerome Powell, include the potential for prolonged inflation and slower growth, which could impact policy-and-legislation and general-news discussions in politics and business.
