The head of the Federal Reserve made some of his most forceful comments yet Wednesday about the president’s tariffs, suggesting that they would force the central bank into a sticky situation.
In his remarks at the Economic Club of Chicago on Wednesday, Jerome Powell explained that while there’s no immediate need to cut interest rates, trade disruptions caused by President Donald Trump will likely complicate the central bank’s path forward.
“As that great Chicagoan Ferris Bueller once noted, ‘Life moves pretty fast,’” Powell quipped. “For the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance.”
It’s possible the subtle jab was meant to reference a scene from the 1986 film in which a monotone high school teacher explains why the Smoot-Hawley Tariff Act of 1930 failed. The resurfaced clip went viral after Trump first announced his sweeping tariffs earlier this month.
Powell also cautioned that large tariff increases, by driving up consumer prices and weakening economic activity, could force the Federal Reserve to choose between its goal of lower inflation and maintaining a strong labor market.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Powell said.
Should this be the case, the Fed would have to weigh whether inflation is close to its 2 percent target, how weak the labor market would consequently become, and then how much time it would take for both those variables to get better when adjusting interest rates.
“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 explained.
Powell also reiterated his statement from earlier this month, saying that tariffs “are highly likely to generate at least a temporary rise in inflation.”
In reiterating his stance that the central bank shouldn’t be in a hurry to cut interest rates, the Fed chair also seemed to acknowledge that the economic landscape, which has been shaken by Trump’s erratic trade policy developments, is uncertain.
Overall, his remarks highlighted that when all is said and done, the central bank is focused on ensuring that the public only witnesses a temporary price growth following any cost increase.
He also implied that although the Fed will try to balance its pursuit of the two goals, the central bank might elevate its inflation goal over its labor-market mandate if the two were in conflict.
“Without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans,” Powell said.
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