Federal Reserve Chairman Jerome Powell warned Wednesday that President Donald Trump’s tariffs and the “turmoil” surrounding his administration are expected to cause inflation to rise this year.
An increase in unemployment figures is also expected, he told reporters Wednesday after a two-day meeting of the Federal Open Market Committee, in addition to “somewhat elevated” inflation moving the previously anticipated 2.5% estimate to 2.8% by year’s end.
“A good part of it is coming from tariffs,” Powell explained.
He was nominated to the role by Trump in 2017—and did his best to paint a rosy picture of the economy while cautioning that it was slowing down. He said the economy “seems to be healthy,” as supported by things like a steady jobs report last month, but also conceded there is an “underlying unhappiness” for everyday Americans with it.
“We understand that that sentiment is quite negative at this time,” he said. “And that probably has to do with, you know, turmoil at the beginning of an administration. It’s making, you know, big policy changes in areas of policy, and that’s probably part of it.”
Powell said the committee decided to keep interest rates where they’ve been since December and “wait for further clarity,” with “tariff inflation” and “really high uncertainty” among the reasons for the lack of a cut this time around.
That means the Fed will keep the borrowing rate between 4.2% and 4.5%. Powell said he expects two quarter-point rate cuts by the end of 2025—in line with a forecast from December.
Powell also mentioned the economic “r-word,” as CNN described it, and told reporters the chance of a recession “has moved up” under Trump’s watch but remains “not high.”
“There is always an unconditional possibility of recession,” he said. “It might be broadly in the range of 1 and 4 at any time if you look back through the years. The question is whether this current situation—those possibilities are elevated.”
The Trump administration slapped 25% tariffs on goods from Mexico and Canada earlier this month, though the White House soon imposed a one-month delay for some of the duties. Tariffs imposed on steel and aluminum last week triggered retaliatory tariffs from Canada and the European Union, which came in addition to measures put in place by China.
Those actions coincided with the S&P 500 closing down more than 10% from its February high. The Dow, meanwhile, suffered its worst one-week drop since 2023.
Powell’s tariff talk—by simply addressing they are contributing to an economic slow down—puts him in conflict with White House messaging, which has claimed for months that taxing allies like Mexico and Canada will benefit consumers and bring jobs back stateside.
The Fed, meanwhile, says tariffs had contributed to a “good part” of recent price increases, adding that other “significant policy changes” regarding trade, migration, fiscal policy, and regulation had also upped the country’s economic uncertainty.
“The net effect of these policy changes that will matter for the economy and for the path of monetary policy,” Powell said. “Uncertainty around the changes and their effects on the economic outlook is high.”
