Input Stories

Federal Reserve Chair Jerome Powell issued a stark warning about the economic effects of tariffs, saying Wednesday that the central bank may have less room to maneuver in shielding the economy from high prices and high unemployment (Wall Street Journal, subscription).

What he said: Powell said he foresaw a “strong likelihood” that the economy would suffer higher prices and lower employment in the short term.

• “This would create a ‘challenging scenario’ for the central bank because anything it does with interest rates to address inflationary pressures could worsen unemployment, and vice versa, he said. ‘It’s a difficult place for a central bank to be, in terms of what to do,’ Powell said during a moderated discussion at the Economic Club of Chicago.”

Priorities: Powell also implied that he might focus more on the Fed’s inflation goal than righting the labor market, if faced with an either-or choice.

• “The Fed would attempt to balance the two goals, ‘keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans,’ he said.”
• “The Fed’s focus, he said, will be to ensure that any one-time increases in prices from tariffs don’t fuel more persistent price increases.”

Long-term damage: Powell also warned of the long-term consequences of tariffs. “When you think about supply disruptions, that is the kind of thing that can take time to resolve and it can lead what would’ve been a one-time inflation shock to be extended, perhaps more persistent,” he said.

The last word: “As that great Chicagoan Ferris Bueller once noted, ‘Life moves pretty fast,’” Powell said. “For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.”