Tariffs Pushing Up Prices, But Wider Impact Unclear, Says Powell After Fed Rate Cut

The tariffs imposed by US President Donald Trump on most trading partners are pushing up the prices, but their wider impact is still unclear, according to US Federal Reserve Chair Jerome Powell.

Powell's remarks came in a press briefing, following the Federal Open Market Committee's decision to cut the benchmark overnight lending rates for the first time in 2025. On expected lines, the FOMC trimmed the key rates by 25 basis points to 4–4.25% range.

The cloud over labour market is one of the primary reasons behind the Fed's decision to resume the rate cut cycle, as indicated in the FOMC statement. Powell, while speaking to reporters, said it is "certainly possible" that tariffs are impacting the labour market.

The US jobless claims have risen to a four-year high, while the unemployment rate also touched a nearly a four-year high of 4.3% in August.

Powell, apart from pointing towards the potential pressure exerted on the labour market by the tariffs, said the import levies are pushing up domestic prices.

Even as he expects the tariff inflation impact to continue to build for now, his base case is that that the "impact on inflation will be short-lived".

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The tariff inflation passthrough has been slower and smaller, Powell underlined, while noting that the case for persistent tariff inflation is "less".

Powell, notably, has faced intense criticism from US President Donald Trump for pausing the rate cut cycle over the last nine months.

The Fed had resumed cutting rates in 2024, with the last reduction announced in December. However, with the onset of Trump's presidency, the rate cuts were halted amid fears of a rebound in inflation due to the federal policies that targeted imports and immigration.

The Fed is likely to remain on the rate cut trajectory for the remainder of the calendar year, as its median projection shows half-a-percentage point of more rate reductions in 2025.

The “Dot plot” of rate projections, as shared by the monetary policy body, reaffirms this, but projects only a quarter point cut in 2026. By 2028, the median forecast shows the federal funds rate will be at 3.1%.