President Donald Trump’s significant policy changes, including on tariffs, are unlike anything seen in modern history, putting the Federal Reserve in uncharted waters, Chair Jerome Powell said Wednesday. “These are very fundamental policy changes,” Powell said at an event hosted by the Economic Club of Chicago. “There isn’t a modern experience of how to think about this.” Powell said “the level of the tariff increases announced so far is significantly larger than anticipated” and that the lingering uncertainty around tariffs could inflict lasting economic damage. With Trump’s tariffs putting the economy on a path toward weaker growth, higher unemployment and faster inflation — all at the same time — the Fed is also facing a situation it hasn’t dealt with in about half a century. “We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Powell said. US stocks tumbled as Powell spoke: The Dow was down 700 points, or 1.7%. The broader S&P 500 fell 2.5%. The tech-heavy Nasdaq Composite slid 3.5%. The Fed is responsible for promoting full employment and keeping inflation in check, but Trump’s tariffs threaten both of those goals. For now, however, the US economy remains in decent shape, according to the latest data. Powell said the Fed’s best move for the moment is to stand pat until the data clearly shows how the US economy is responding to Trump’s policies. But it’s only a matter of time until Trump’s tariffs stoke inflation, push up unemployment and weaken economic growth, according to most economists, especially if the massive “reciprocal” tariffs that went into effect briefly on April 9 are put back in place. Trump delayed that historic hike in import taxes until July. So far, Trump has imposed 25% tariffs on aluminum and steel; 25% tariffs on goods from Mexico and Canada that aren’t compliant with a free-trade agreement; a massive 145% duty on Chinese imports; a 25% tariff on cars, with separate tariffs on auto parts coming at a later date; and a 10% baseline tariff on all US imports. The administration also introduced temporary exemptions for some electronic goods, and Trump has said separate tariffs are likely coming down the pike on semiconductors, pharmaceuticals, copper and timber. “Jerome Powell just laid down the law with Trump,” David Russell, global head of market strategy at TradeStation, said in commentary issued Wednesday. “It was a clear warning about stagflation, and a declaration that the Fed won’t enable the White House with rate cuts.” Part of Trump’s tariffs will be paid ‘by the public’ Trump has repeatedly claimed foreign countries pay tariffs levied on them, but Powell noted Wednesday that is not the case. As a result of the tariffs that Trump has enacted, with likely more to come, “unemployment is likely to go up as the economy slows,” Powell said. “In all likelihood,” inflation is likely to go up as well, he said. That is to say that a portion of the burden of tariffs is going to be “paid by the public.” It’s all but certain that prices will rise from tariffs, Powell said, but it’s still a question as to whether that will cause overall inflation levels to accelerate and to what extent. Does the Fed have a good playbook? The Fed might be confronted with a challenge it hasn’t dealt with in decades. In the 1970s and early 1980s, the US economy suffered periods of high unemployment and double-digit inflation, a troublesome combination known as “stagflation.” Back then, under the leadership of Fed Chair Paul Volcker, the Fed prioritized fighting inflation, even if it meant inflicting some economic pain. The US economy seems to be heading in that direction, according to most forecasts, but it’s unclear whether or not it will fully reach that point. Chicago Fed President Austan Goolsbee said last week at an event in New York that Trump’s tariffs are putting the central bank in that same tough spot. “A tariff is like a negative supply shock. That’s a stagflationary shock, which is to say it makes both sides of the Fed’s dual mandate worse at the same time,” he said. “Prices are going up while jobs are being lost and growth is coming down, and there is not a generic playbook for how the central bank should respond to a stagflationary shock.” Powell said if stagflation does become a reality, “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.” “We understand that elevated levels of unemployment or inflation can be damaging and painful for communities, families, and businesses,” he said. Several Fed officials have said that the central bank should keep a close eye on people’s perception of prices, which have deteriorated based on the University of Michigan’s closely watched consumer survey. It’s unclear at what point rising inflation expectations would prompt any action from the Fed and what those moves would be. And inflation, albeit substantially below a four-decade peak reached in June 2022, is still slightly above the Fed’s 2% target, meaning the Fed has less of a reason to resume cutting interest rates. But for now, most officials seem to agree that it’s best to wait for any evidence to show up in the data. “This is a difficult set of risks for monetary policy to navigate,” Cleveland Fed President Beth Hammack said Wednesday at an event in Columbus, Ohio. “Given the economy’s starting point, and with both sides of our mandate expected to be under pressure, there is a strong case to hold monetary policy steady in order to balance the risks coming from further elevated inflation and a slowing labor market.” “When clarity is hard to come by, waiting for additional data will help inform the path ahead,” she added.
Fed Chair Powell gives starkest warning yet on potential economic consequences from tariffs
TruthLens AI Suggested Headline:
"Fed Chair Powell Warns of Economic Risks from Trump's Tariff Policies"
CNN
8.1
TruthLens AI Summary
Federal Reserve Chair Jerome Powell delivered a significant warning regarding the economic impact of President Donald Trump's tariffs, emphasizing that these policy shifts are unprecedented in modern history. Speaking at an event hosted by the Economic Club of Chicago, Powell highlighted the substantial nature of the tariff increases, indicating that they exceed earlier expectations and could lead to prolonged uncertainty affecting economic stability. He noted that the tariffs are likely to contribute to a scenario of weaker economic growth, elevated unemployment, and rising inflation simultaneously, a challenging situation that the Fed has not faced in approximately 50 years. Powell articulated the tension between the Fed's dual mandates of promoting maximum employment and controlling inflation, which are under threat from the current tariff policies. As he spoke, stock markets reacted negatively, with the Dow dropping 700 points, reflecting investor concerns about the economic outlook under Trump's tariffs.
Despite the current resilience of the US economy, Powell warned that the long-term implications of the tariffs could be detrimental. He pointed out that the burden of these tariffs will ultimately fall on the public, with the potential for rising prices and increased unemployment. The Fed is now confronted with a situation reminiscent of the stagflation experienced in the 1970s and early 1980s, where high inflation and unemployment coexisted. Powell stated that if stagflation becomes a reality, the Fed would have to carefully consider its approach to balancing its goals. Fed officials, including Cleveland Fed President Beth Hammack, echoed this sentiment, suggesting that it may be prudent to maintain current monetary policy while awaiting clearer economic indicators. The uncertainty surrounding inflation expectations and the labor market poses a complex challenge for the Fed, which is cautious about making premature policy changes until more data is available to inform its decisions.
TruthLens AI Analysis
The article highlights significant concerns raised by Federal Reserve Chair Jerome Powell regarding the economic implications of President Trump's tariff policies. With tariffs reaching unprecedented levels and the potential for lasting economic damage, Powell emphasizes the uncertainty surrounding these changes and their impact on the Fed’s dual mandate of promoting full employment and maintaining stable inflation.
Economic Implications and Uncertainty
Powell points out that the tariffs are larger than expected and could lead to negative outcomes such as slower economic growth, increased unemployment, and accelerated inflation. The Federal Reserve is navigating a challenging environment, as it has not encountered such a scenario in decades. This uncertainty is likely to influence not only economic policy but also public sentiment regarding the administration’s trade strategies.
Market Reactions
The immediate response from the stock market was negative, with significant drops in major indices like the Dow, S&P 500, and Nasdaq. Such market reactions indicate investor anxiety about the potential repercussions of tariffs, suggesting that they view these policy changes as detrimental to economic stability.
Public Perception and Messaging
The article may aim to shape public perception by highlighting Powell's warnings, which could create a sense of urgency about the need for careful economic management. By emphasizing the potential risks associated with tariffs, the article may seek to alert the public and policymakers to the possible adverse consequences of current trade policies.
Hiding the Bigger Picture?
While the article focuses on tariffs and their immediate economic impact, it may obscure broader discussions about trade relations and long-term economic strategy. The emphasis on Powell's warnings could divert attention from other pressing issues such as income inequality or long-term growth strategies that are also affected by trade policies.
Manipulative Potential and Reliability
There is a potential for manipulation in the article through the tone and selective emphasis on Powell's statements, which may serve to heighten concern without providing a balanced view of the broader economic context. However, the basis of the report relies on statements from a credible source, making it relatively trustworthy in terms of factual reporting.
Comparative Analysis with Other Reports
In comparison to other economic news, this article aligns with ongoing discussions about the ramifications of trade policies under the current administration. It reflects a narrative that is prevalent in economic discourse, particularly in light of the volatility in global markets.
Societal and Political Implications
The article may resonate more with communities concerned about economic stability, such as middle-class workers and businesses that could be affected by rising costs. The focus on tariffs and their economic implications appeals to a broader audience that includes both economic conservatives and those advocating for responsible fiscal policies.
Market Impact
The content could have significant implications for stock markets and investor behavior, especially for industries directly affected by tariffs such as steel, aluminum, and automotive sectors. Investors may reassess their positions in these markets based on the perceived risk stemming from tariff policies.
Global Power Dynamics
Regarding global power dynamics, the article ties into the larger discourse on international trade relations and the shifting landscape of global economics. As tariffs affect trade balances and diplomatic relations, this coverage is relevant to current geopolitical discussions.
Artificial Intelligence in Reporting
The article appears to be a human-written piece, but it is possible that AI tools could have been used for data analysis or fact-checking. However, the style and depth of the report suggest a human touch in crafting the narrative and presenting the information in a compelling way.
In conclusion, while the article effectively raises important points regarding the economic impact of tariffs, it may also carry implications that warrant a deeper examination of the broader economic landscape, the motivations behind such reporting, and the potential for influencing public and market perceptions.