Federal Reserve Chairman Jerome Powell signaled that the US economy may need to adjust its growth trajectory due to ongoing trade tensions and rising tariffs. In his testimony before the Senate, Powell indicated that labor market conditions remain strong but inflation remains a concern.
Powell stated that if inflation doesn’t fall below 2%, policymakers will have to consider “policy restraint” for longer periods. This comes as President Trump continues to impose new tariffs on steel, aluminum, and other goods, which may boost inflation in the coming months.
The Fed’s primary inflation rate, the core PCE price index, is expected to ease to 2.6% from 2.8% due to a strong January jobs report. However, Deutsche Bank economists warn that Trump tariffs could push the core inflation rate above 3.5% this year.
The impact of tariffs on inflation is uncertain and will depend on various factors such as currency fluctuations, substitution of goods by consumers, and decisions by wholesalers and retailers about price increases. Powell emphasized the Fed’s ability to slow down economic growth if necessary, citing its good position in doing so despite ongoing trade tensions.
In light of this uncertainty, investors are watching the S&P 500 closely ahead of Wednesday’s consumer price index report.
Source: https://www.investors.com/news/economy/federal-reserve-chairman-powell-eyes-trump-tariffs-cpi-inflation-sp-500