Donald Trump’s tariffs put Federal Reserve’s jobs and inflation goals at risk, says Jay Powell

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Donald Trump’s tariffs are “likely” to put at risk the Federal Reserve’s goals of keeping prices and unemployment in check, chair Jay Powell warned, as he emphasised the US central bank’s focus on inflation.

The Fed chief said on Wednesday: “The [Trump] administration is implementing significant policy changes and particularly trade is now the focus. The effects of that are likely to move us away from our goals.”

While US rate setters would aim to “balance” their goals of keeping inflation near 2 per cent and maximising employment, they would need to remember that “without price stability, we cannot achieve long periods of strong labour market conditions”, Powell said in remarks to the Economic Club of Chicago.

Powell also said the president’s tariffs announced so far had been “significantly larger than anticipated”, adding that “the same was likely to be true of the economic effects, which will include higher inflation and slower growth”.

US stocks extended a sell-off that began earlier on Wednesday as the Fed chair spoke, with the S&P 500 ending the day down 2.2 per cent.

Asian markets were mixed on Thursday, with China’s CSI 300 equities benchmark down 0.2 per cent and Japan’s Topix up 1 per cent. Futures tracking the Stoxx Europe 600 were down 0.2 per cent.

Powell said Trump’s tariffs might place US rate setters “in the challenging scenario in which our dual-mandate goals are in tension”.

“If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close,” Powell said.

Several Fed officials — including John Williams, head of the New York Fed, and governor Christopher Waller — have said inflation is likely to surge in the coming months on the back of the administration’s proposed tariffs.

While Waller thinks the impact of tariffs will prove shortlived, other members of the rate-setting Federal Open Market Committee which Powell chairs believe Trump’s tariffs have increased the odds that inflation will be a longer problem for US consumers.

Trump has repeatedly called on the Fed to cut interest rates, posting on his Truth Social platform last month that officials should act as “US Tariffs start to transition (ease!) their way into the economy”.

The Fed’s preferred personal consumption expenditures price index rose at an annual pace of 2.5 per cent in February, above the central bank’s target.

Recent surveys have shown that consumers and businesses are expecting strong price rises in the near future as the new taxes on imports ripple through the economy.

The Trump administration’s policies have placed the Fed in “wait and see” mode, after the FOMC made a series of cuts over the second half of last year.

The US central bank has kept its benchmark federal funds target range at 4.25-4.5 per cent this year, with officials saying they are well-placed to respond once the economic data show the effects of the president’s policies on American businesses and households.