U.S. Federal Reserve Chair Jerome Powell said on Wednesday that President Donald Trump's tariff increases would delay progress in bringing down inflation this year, but the Fed's base case is that tariff-related price impacts will be transitory, working through the economy quickly.
Powell told a news conference after the Fed held rates steady that it was too soon to determine whether the Fed needed to look through the inflationary impact from higher tariffs. He said it would be challenging to determine how much of any goods price inflation is attributable to tariffs and how much is due to other factors.
But he noted that business and household surveys were turning up more and more concerns about inflation and short-term inflation expectations, although longer-term inflation expectations are "mostly well-anchored."
"I do think with the arrival of the tariff inflation, further progress may be delayed" in reaching the Fed's 2% annual inflation rate, Powell said. The Fed's quarterly summary of economic projections "doesn't really show further downward progress on inflation this year, and that's really due to the tariffs coming in."
Since taking office, Trump has moved to radically redraw global trade flows, already imposing a 20% increase in import duties on goods from China and 25% tariffs on goods from Canada and Mexico that do not comply with U.S.-Mexico-Canada Agreement trade rules.
He has fully restored 25% tariffs on global steel and aluminum imports and on April 2 will implement "reciprocal tariffs" to offset the import taxes and non-tariff barriers of all trading partner countries.
At the moment, the policy signal from Trump's tariff plans is unclear, but much would depend on how quickly any tariff-related inflation moved through the economy, and whether inflation expectations stay well-anchored.
He said recent strong inflation readings during the last two months were unexpected but may be due to people buying ahead of tariffs. The Fed will try to trace those effects, but there is a lot of "noise" surrounding announcements of tariffs being put on and delayed.
"But ultimately, though, it's too soon to be seeing significant effects in economic data," Powell said of tariff impacts.
