US Fed Meeting: Jerome Powell Says Sustained Tariffs May Push Inflation, Unemployment

US Federal Reserve Chair Jerome Powell, while keeping the benchmark lending rates unchanged on Wednesday, raised apprehensions over the impact of the now-paused high import tariffs announced by US President Donald Trump last month.

The tariffs hold the potential to trigger inflation, and stoke unemployment, while also curbing the pace of economic growth, Powell said in a press briefing following the Federal Open Market Committee meeting.

"Tariffs, if sustained, are likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment," he said.

Powell's briefing came shortly after the FOMC, chaired by him, left the benchmark lending rates unchanged in the range of 4.25-4.5% for third time in a row. The current monetary policy is "modestly, or moderately restrictive", the Fed chair noted.

Even as Powell flagged the risk of tariffs, he noted that its effect on inflation could be "short lived". It may reflect a one-time shift in the price level, the central bank chief said.

“It is also possible that the inflationary effects could instead be more persistent. Avoiding that outcome will depend on the size of the tariffs effects, on how long it takes for them to pass fully into prices and ultimately on keeping longer-term inflation expectations well anchored," he added.

Even as US President Donald Trump continues to mount pressure over him to slash the lending rates, the Fed chair said he is "no hurry" to adjust the the rates.

"We think we can be patient, we are going to be watching the data," Powell said. "We can move quickly when that’s appropriate."

Notably, the Fed had reversed its four-year trajectory in September 2024 when it finally slashed the rates by 50 basis points. This was followed by 25 bps reductions each in the following two months.

However, the Fed paused the rates in January, when Trump took office, and decided to maintain status quo again in the next policy review meeting in March. This had drawn fierce criticism from the US president, who had blamed Powell for hindering the path towards economic growth by keeping the rates high.

Powell, in the briefing on Wednesday, reiterated that he is not affected by the pressure mounted by Trump. “It doesn’t affect doing our job at all. So, we are always going to do the same thing -- which is, we are going to use our tools to foster maximum employment and price stability for the benefit of the American people.”

Notably, the FOMC decision to hold the rates for the third consecutive time was on expected lines. The CME Group's FedWatch tool indicated a barely 2% chance of rate cut, and showed a one-in-three probability of a reduction in the June meeting.

This is primarily driven by the fact that Trump's tariff policy poses uncertainty. While Trump last month announced a three-month pause in the tariffs to strike bilateral trade deals, his administration is yet to reach a conclusive pact with any of the trading partners.

The US and Chinese officials, as per reports, were to take about trade in a meeting to be held in Switzerland on Wednesday. When asked about a potential deal, Powell said, "We seem to be entering a new phase for trade, where negotiations are starting. That could change the picture materially or not. We’re mindful about not making conclusive judgements at a time when the facts are changing."