Federal Reserve Chairman Jerome Powell is once again facing the challenge of taming runaway US inflation without inducing a recession, despite recent efforts to soft-land the economy. The latest data shows US inflation dipped to 2.4% in March, its lowest annual rate since 2021, but the outlook remains uncertain due to President Donald Trump’s ongoing trade war.
Powell, who has been channeling his hero Paul Volcker’s approach to curb inflation, is now being pressured by the White House to lower borrowing costs ahead of “Liberation Day”. However, Powell has pushed back, citing the higher-than-anticipated tariffs and their potential to spark persistent inflation beyond the initial price shock.
The Fed is cautious about acting before the data becomes clearer, with some members warning that any move could create a self-fulfilling prophecy. The market is also responding to Trump’s trade war, with investors becoming increasingly nervous, prompting warnings of a recession this year.
Powell will have to draw on Volcker’s playbook to address stagflation, which may yet become an issue given the ongoing tariffs and their impact on growth. Economists are divided on the outlook, but one thing is clear: Powell must navigate these challenges to keep inflation under control without jeopardizing economic stability.
As the situation unfolds, Powell will be keeping a close eye on Volcker’s guide, as investors increasingly look for signs of stagflation. The outcome remains uncertain, but one thing is clear – the Fed chairman has a tough road ahead in managing the economy amidst the ongoing trade war and inflationary pressures.
Source: https://www.reuters.com/breakingviews/fed-chair-nears-second-chance-channel-his-hero-2025-04-10