Fed Triggers Alarm: Tariff Explosion Could Ignite Runaway Inflation Spiral

Federal Reserve Chair Jerome Powell issued a stark warning about the inflationary consequences of rising tariffs during his April 4 speech at the Society for Advancing Business Editing and Writing conference in Arlington, Virginia.

Highlighting the growing strain on the economy from evolving trade policies, Powell signaled that the Federal Reserve is bracing for renewed inflationary pressures. He cautioned:

Looking ahead, higher tariffs will be working their way through our economy and are likely to raise inflation in coming quarters.

He noted that both survey- and market-based measures of near-term inflation expectations have increased. Powell indicated that while the U.S. economy remains resilient, the Fed sees the inflation outlook deteriorating under the weight of new trade barriers. The Fed chair said the magnitude of upcoming tariff hikes and their broader impact are now becoming more apparent, stating:

While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected. The same is likely to be true of the economic effects, which will include higher inflation and slower growth. The size and duration of these effects remain uncertain.

His comments come as the Federal Reserve navigates competing risks of elevated inflation and the possibility of weaker economic performance, both of which are being exacerbated by new federal policy shifts, particularly in trade.

In addressing how the central bank might respond, Powell cautioned that the inflationary impact of tariffs may not be short-lived. He opined:

While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent.

He explained that avoiding that outcome depends on keeping longer-term inflation expectations anchored, the magnitude of the effects, and how long they take to pass through to prices. Powell added that while the Federal Reserve is not ready to adjust policy, it remains vigilant and prepared to act once it better understands the economic impact of tariffs.

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