US Fed Chair warns new tariffs will likely raise inflation, retard growth

US President Donald Trump’s tariffs risk higher unemployment and will likely cause inflation to rise and growth to slow, Federal Reserve Chair Jerome Powell said on Friday.

“It is now becoming clear that the tariff increases will be significantly larger than expected,” Powell told an event in Virginia.

“The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” he said, adding that it was “too soon” to consider making changes to US monetary policy.

Trump’s announcement earlier this week of heavy levies against top trading partners has rocked global markets as investors have grappled with the prospect of higher import costs on everything from shoes to shrimp.

The larger-than-expected measures announced on Wednesday stack on top of earlier country-specific levies, meaning that China, for example, will now face a new levy totaling 54 per cent.

Other top trading partners will also see higher rates, with the European Union now facing a 20 per cent tariff from April 9, and India looking at a 26 per cent levy.

The Trump administration has also targeted specific sectors of the economy, recently slapping a 25 per cent tariff on automobiles not made in the United States.

Powell’s comments suggest the Fed is in no rush to cut its benchmark lending rate from its current elevated level of between 4.25 and 4.50 per cent, as it continues its struggle to bring inflation down to its long-term two- per cent target.

In recent months, the Fed’s progress in bringing inflation down to target has stalled, while growth has remained solid and the unemployment rate has hugged close to historic lows.

Faced with this data, the Fed voted last month to extend its pause in rate cuts, and signaled it wanted to see how the new administration’s policies would feed through into the economy before taking any action.

But policymakers − now including Powell − have warned that tariffs could cause prices to rise, with the extent of the price increase likely determined by the rollout of the levies, and how consumers and business respond.

Ahead of Powell’s speech on Friday, Donald Trump took to his Truth Social account to insist that his tariff policy would not change despite the market reaction, and called on Powell to act.

“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates,” he wrote. “He is always ‘late,’ but he could now change his image, and quickly.” “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!” added Trump, who first nominated Powell to run the Fed, before turning against him during his first term.

Sell-off worsens worldwide and Dow drops 1,300 after China retaliates against Trump tariffs. Stock markets worldwide are careening even lower Friday after China matched President Donald Trump’s big raise in tariffs in an escalating trade war. Not even a better-than-expected report on the US job market, which is usually the economic highlight of each month, was enough to stop the slide.

The S&P 500 was down 3.8% in midday trading, after earlier dropping more than 5%, following its worst day since COVID wrecked the global economy in 2020. The Dow Jones Industrial Average was down 1,349 points, or 3.3%, as of 11:30 a.m. Eastern time, and the Nasdaq composite was 3.8% lower.

So far there are few, if any, winners in financial markets from the trade war. European stocks saw some of the day’s biggest losses, with indexes sinking roughly 4%. The price of crude oil tumbled to its lowest level since 2021. Other basic building blocks for economic growth, such as copper, also saw prices slide on worries the trade war will weaken the global economy.

China’s response to US tariffs caused an immediate acceleration of losses in markets worldwide. The Commerce Ministry in Beijing said it would respond to the 34% tariffs imposed by the US on imports from China by imposing a 34% tariff on imports of all US products beginning April 10. The United States and China are the world’s two largest economies.

Markets briefly recovered some of their losses after the release of Friday morning’s US jobs report, which said employers accelerated their hiring by more last month than economists expected. It’s the latest signal that the US job market has remained relatively solid through the start of 2025, and it’s been a linchpin keeping the US economy out of a recession.

But that jobs data was backward looking, and the fear hitting financial markets is about what’s to come.

“The world has changed, and the economic conditions have changed,” said Rick Rieder, chief investment officer of global fixed income at BlackRock.

The central question is: Will the trade war cause a global recession? If it does, stock prices will likely need to come down even more than they have already. The S&P 500 is down roughly 15% from its record set in February.

Much will depend on how long Trump’s tariffs stick and what kind of retaliations other countries deliver. Some of Wall Street is holding onto hope that Trump will lower the tariffs after prying out some “wins” from other countries following negotiations. Otherwise, many say a recession looks likely.

Associated Press