Trump tariffs partly to blame for higher prices: Fed Chair Powell

Federal Reserve Chair Jerome Powell on Wednesday said President Donald Trump’s tariffs are partly to blame for price increases, leveling the criticism minutes after the central bank announced its decision to hold interest rates steady.

The rate decision came weeks after Trump touched off a global trade war that sent stocks reeling and triggered concern about a possible recession.

Even as the Fed left its main policy lever unchanged, the central bank predicted weaker year-end economic growth and higher inflation than it had in a December forecast. By the end of 2025, inflation will stand at 2.8%, slightly higher than a prior prediction of 2.5%, the Fed said.

The Fed expects two quarter-point rate cuts by the end of 2025, matching its previous prediction.

Speaking in Washington, D.C., on Wednesday, Fed Chair Jerome Powell said the economy faces uncertainty, pointing to the Trump administration's potentially "significant policy changes" regarding trade, immigration, fiscal policy and regulation.

"It's the net effect of these policy changes that will matter for the economy and for the path of monetary policy," Powell said. "Uncertainty around the changes and their effects on the economic outlook is high."

Powell acknowledged that tariffs had contributed to a "good part" of recent price increases.

The Fed retreated in its fight against inflation over the final months of last year, lowering interest rates by a percentage point. Still, the Fed's interest rate remains at a historically high level of between 4.25% and 4.5%.

The comments from Powell echoed remarks he made less than two weeks ago, when he said tariffs would likely raise prices, while advocating for a wait-and-see posture as Trump's economic policies take shape.

"We are focused on parsing the signal from the noise as the situation evolves," Powell told an economic forum in New York City. "We are not in a hurry."

The Trump administration earlier this month slapped 25% tariffs on goods from Mexico and Canada, though the White House soon imposed a one-month delay for some of the tariffs. A fresh round of duties on Chinese goods doubled an initial set of tariffs placed on China a month prior.

Tariffs imposed on steel and aluminum last week triggered retaliatory tariffs from Canada and the European Union, adding to countermeasures already initiated by China.

Last week, the S&P 500 closed down more than 10% from its high last month, marking the index's first correction since October 2023. The Dow Jones Industrial Average suffered its worst one-week drop since March 2023.

By some key measures, the economy remains in solid shape, however. A recent jobs report showed steady hiring last month and a historically low unemployment rate. Inflation stands well below a peak attained in 2022, though price increases register nearly a percentage point higher than the Fed's goal of 2%.

Stretching back to his first term in office, Trump has repeatedly urged the Fed to lower interest rates.

In January, during a virtual address to the World Economic Forum in Davos, Switzerland, Trump called on the central bank to cut rates days before it was set to announce an interest rate decision.

At the ensuing meeting that month, the Fed decided to hold interest rates steady. Speaking at a press conference in Washington, D.C., after the announcement, Powell declined to comment about Trump's call for lower interest rates, saying it would be "inappropriate" to respond.

"The public should be confident that we'll continue to do our work as we always have," Powell said, adding that the Fed would continue to "use our tools to achieve our goals."