US President Donald Trump on 4 April urged US Federal Reserve chief Jerome Powell to “quickly” lower the benchmark lending interest rate. But Powell believes that after imposing new import duties, it is necessary to wait for fresh data on the state of the US economy, Reuters reported.
“Now is the perfect time for Fed Chairman Jerome Powell to cut interest rates. He is always ‘late’ but now he can change his image and do it quickly,” Trump wrote on the Truth Social Network minutes before Powell’s speech, in which the Fed chief said Trump’s new U.S. import tariffs” are larger than expected” and their economic consequences, including higher inflation and slower growth, are likely to be significant.
“We are dealing with an extremely uncertain environment and heightened risks of both higher unemployment and higher inflation,” Powell said, noting that this undermines both of the Fed’s mandates of keeping inflation at 2 per cent and maximising employment.
Powell’s speech came amid falling global markets, which have already sent major U.S. stock indexes lower after Trump announced new duties. Powell did not comment directly on the market decline, but acknowledged that investor and business uncertainty has also affected the Fed.
According to Powell, the regulator has time to wait for new data before making a decision on monetary policy. However, the Fed’s main challenge remains to ensure stable inflation expectations, especially if the new duties trigger a permanent rise in prices.
“While the duties are likely to cause at least a temporary increase in inflation, there is a possibility that their effects will be more long-lasting,” Powell said.
He emphasised that the Fed must prevent a one-off price rise from becoming a permanent inflationary problem. At the same time, Powell noted that the Fed is not commenting on the Trump administration’s policies, but only reacting to their impact on the economy, which the regulator said a few weeks ago was in an “ideal state” – with declining inflation and low unemployment.
The Fed is dealing with an unusual combination of risks-rising prices and a slowing economy at the same time. The issue is coming up more frequently in comments from Fed officials as the extent of Trump’s tariff policy becomes more apparent and other countries resort to countermeasures.
China has already announced a 34 per cent duty on all US goods, restrictions on mineral exports that are important to the technology industry and a ban on imports of US chicken.
World stock markets continue to fall. U.S. administration officials are still downplaying the significance of this recession, the worst since the COVID-19 pandemic, arguing that it is necessary for future economic growth.
Although the situation has not yet reached classic “stagflation”, Adriana Kugler, a member of the Fed’s Board of Governors, said there are already “elevated risks to inflation and real signs of rising inflation”. She also warned of a possible future slowdown in the economy.
Fed Vice Chairman Philip Jefferson noted that” significant trade uncertainty” could negatively impact household and business spending, while Board of Governors member Lisa Cook emphasised that inflation expectations had been rising even before Trump’s recent announcements on new tariffs.
Analysts estimate that Trump’s new duties will result in an average import tax of 27 per cent in the US. Under the Biden administration, it was only 2.5 per cent.