The chairman of the US Federal Reserve has stated that it is still "very difficult" to assess the final impact of the tariffs due to the type of retaliation the affected countries will take.
Federal Reserve Chairman Jerome Powell warned this Friday that the tariffs announced by Donald Trump will lead to lower economic growth and higher inflation, although he will wait for more data before changing monetary policy despite the potential for stagflation.
"Although uncertainty remains high, it is increasingly clear that tariff increases will be much larger than expected. The same can be said for the economic effects, which will include higher inflation and slower growth," he noted during a meeting in Arlington, Virginia.
In this regard, Powell stated that it is still "very difficult" to assess the final effect of the tariffs, not only because of the lack of details about what will be taxed, to what extent, and for how long, but also because of the type of retaliation the affected countries will take.
Powell has maintained that, although it is "highly likely" that the pro-inflationary dynamic of tariffs will be at least "temporary," it is not out of the question that they could be "longer-lasting."
In fact, prices could rebound over the coming quarters, something that is already being reflected in the inflation expectations of businesses and households. Even so, he noted that these expectations remain "well anchored" for several years ahead and in line with a 2% inflation target.
The "guardian of the dollar" has asserted that the Fed is "well positioned" to wait and gain "greater clarity" on the implementation of Trump's agenda on trade, immigration, fiscal, and regulatory matters before adjusting interest rates.
"Our obligation is to keep long-term inflation expectations firmly anchored and ensure that a one-time price increase doesn't become a permanent inflation problem," he summarized, before acknowledging that, at this time, there are doubts about the "appropriate path" to follow in monetary policy.
On the other hand, Powell indicated that the US labor market remains "more or less balanced" and is not a "significant" source of inflationary pressures.
"The combination of few layoffs, a moderation in employment growth, and a slowdown in labor force growth has kept the unemployment rate largely stable," he explained.
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