Fed Chairman Jerome Powell warned Wednesday that President Donald Trump's tariff regime could lead to increased inflation and unemployment, as well as a slowdown in the U.S. economy as a whole.
"If the announced tariffs are significantly higher, they could lead to higher inflation, slower economic growth and increased unemployment," Powell said in a press conference on Wednesday. "The impact on inflation may be short-lived, reflecting a one-time shift in price levels. The inflation effect may also be more durable.
"Avoiding such results will depend on the size of the tariff effect, depending on the time they pass completely," he added.
Powell spoke to reporters after announcing that the Fed will not change its key interest rates in response to Trump's tariff policies and global trade disputes. "To support its goals, the Commission decided to keep the target range of federal funding rates between 4-1/4% and 4-1/2%" the Federal Reserve wrote in its Open Market Committee statement.
Speaking to the media, Powell added: “Given the scope and size of the tariffs, we will see, of course, that certainly increases the risk of inflation and unemployment,” Powell said. “If this is what we see, if tariffs are finally reached on these levels, then we don’t know, then we won’t see further goals.”
Shortly after the announcement, Trump told reporters that he would not lower the 145% tariff rate he imposed on China to convince them to come to the table and negotiate a trade deal. "No," the president told reporters when asked whether he was considering reducing some tariffs to begin the discussion.
Trump made it clear that he wanted the Fed to significantly lower interest rates in a way to increase U.S. investor interests in the U.S., but so far the independent Fed has refused to succumb to the president's demands, despite Trump's threat to forcefully revoke Powell. Last month, Trump attacked Powell's truth society, calling him "too late and wrong."
"It's too late and interest rates should be lowered like the ECB, but he should lower their interest rates now. Powell's termination cannot be fast enough!" Trump added.
In April, Trump shared a video on social media that claimed he was implementing extensive tariffs to purposefully collapse the stock market in order to put pressure on the Fed. "Trump collapsed the stock market by 20% this month, but he did it on purpose," the video claimed. He added that the consequences of the tariffs would force "the Fed to cut interest rates in May, and these lower rates allow the Fed to pay back trillions of dollars in debt very cheaply. This also weakens the exchange rate and lower mortgage rates."
"It's a wild chess move now, but it's working," the video added.
Well, this is May, and the Fed is not cutting interest rates as Trump calls 5D chess move. The economy is the weakest in years, and almost every famous financial institution warns that hard times will come if the president doesn’t step on the brakes.