Federal Reserve Chair Jerome Powell expressed concern that tariffs could lead to persistent inflation, warning that a one-time shock may not be enough to guarantee its impact is temporary. While economic theory suggests tariffs are unlikely to cause long-term price increases, Powell believes it’s essential to monitor the situation closely.
Powell noted that if tariffs come in quickly and are resolved, they likely won’t have a lasting effect on prices. However, he emphasized that there is still a risk of persistent inflation, particularly given recent data on rising import taxes and inflation above the Fed’s 2% target for four years. The central bank will continue to hold interest rates steady until it sees signs of price increases.
Fed officials expect to cut interest rates this year, but the timing is uncertain due to trade deadlines and uncertainty around the scope of tariffs. Investors still anticipate two rate cuts this year, despite some Republican lawmakers pushing for immediate reductions. The Fed’s benchmark interest rate has remained steady since December at 4.25%-4.5%.
Powell also highlighted that there is no modern precedent for tariff increases of Trump’s size, with smaller tariffs enacted during his first term. However, the Fed will be cautious and monitor inflation closely before making any decisions on interest rates.
Source: https://www.reuters.com/world/us/feds-powell-heads-senate-panel-second-day-testimony-2025-06-25