Federal Reserve Chair Powell warns that high tariffs could lead to inflation in the U.S. rising to 4%, the unemployment rate reaching 5%, and a slowdown in economic growth.
On May 7, 2025, Federal Reserve Chair Powell warned at a press conference following the Federal Open Market Committee meeting that if the Trump administration continues its significant tariff measures, they will triple-impact the U.S. economy: inflation rates rising to between 3.5% and 4.0%, unemployment rates increasing to between 4.5% and 5.0%, and a slowdown in economic growth. Powell emphasized that these impacts exceed the Federal Reserve's expectations, increasing the uncertainty and challenges for monetary policy.
Key Updates
05/08 03:04
Federal Reserve Chair Powell warns that high tariffs could lead to inflation in the U.S. rising to 4%, the unemployment rate reaching 5%, and a slowdown in economic growth.
On May 7, 2025, Federal Reserve Chair Powell warned at a press conference following the Federal Open Market Committee meeting that if the Trump administration continues its significant tariff measures, they will triple-impact the U.S. economy: inflation rates rising to between 3.5% and 4.0%, unemployment rates increasing to between 4.5% and 5.0%, and a slowdown in economic growth. Powell emphasized that these impacts exceed the Federal Reserve's expectations, increasing the uncertainty and challenges for monetary policy.
Economic Risks Triggered by Tariff Policies
At the press conference, Powell clearly pointed out that the recent tariff measures announced by the Trump administration are "much higher than expected." If these policies continue, they could lead to the risk of "stagflation" in the U.S. economy, where both inflation and unemployment rates rise simultaneously. He stated, "If the significant tariffs currently announced are implemented and persist, it could lead to rising inflation, slowing economic growth, and increasing unemployment."
According to estimates by John C. Williams, President of the Federal Reserve Bank of New York, if tariffs are fully implemented, the U.S. inflation rate could rise to 3.5% to 4.0% by 2025, while the unemployment rate could rise to 4.5% to 5.0%. This forecast is in clear conflict with the Federal Reserve's long-standing goal of maintaining a 2% inflation target and low unemployment rate policy.
Changes in Inflation Pressure and Expectations
Powell noted that recent surveys of households and businesses show that short-term inflation expectations have risen, mainly driven by tariff policies. He stated, "Market and survey data have shown that short-term inflation expectations in the U.S. are increasing, with respondents from consumers, businesses, and professional forecasting institutions all mentioning tariffs as the main driving factor."
Although long-term inflation expectations remain largely consistent with the Federal Reserve's 2% target, Powell warned that if short-term price increases translate into changes in long-term expectations, it could trigger more persistent inflationary pressures. He emphasized, "The Federal Reserve's responsibility is to keep longer-term inflation expectations stable and prevent one-time price increases from becoming a persistent inflation problem."
Challenges to Economic Growth and the Job Market
According to preliminary estimates by the U.S. Department of Commerce, the annualized growth rate of the U.S. Gross Domestic Product (GDP) for the first quarter of 2025 is -0.3%, marking the first decline in three years. Powell pointed out that fluctuations in imports and uncertainties in trade policy complicate GDP calculations. He stated, "The current economic uncertainty is very high, and downside risks have increased."
Although the current unemployment rate remains at a historic low and the labor market is performing well, Powell warned that if tariff policies lead to a decline in business confidence, delays in investment and hiring plans could put pressure on the job market. He noted, "We have already seen a decline in business confidence indices, which could affect hiring and consumption, thereby dragging down overall economic activity."
The Federal Reserve's Policy Stance and Wait-and-See Strategy
In the face of high uncertainty, the Federal Reserve decided to maintain the federal funds rate at 4.25% to 4.5% during its May 7 meeting. Powell stated that the current monetary policy stance "allows us to respond promptly when necessary," but at this stage, the Federal Reserve chooses to adopt a wait-and-see approach to await more economic data.
He added, "We don't need to rush into action. The cost of waiting is relatively low, allowing us to more clearly observe the actual impact of tariff policies on the economy."
The Historical Shadow of Stagflation
Powell mentioned the experience of stagflation from the 1970s to the early 1980s during the press conference, when the U.S. faced both high inflation and high unemployment, and the Federal Reserve paid a high price to control inflation. He noted that although the current economic situation is different from that time, if tariff policies lead to similar dual pressures, the Federal Reserve will face difficult policy choices.
"Our dual mandate is to promote maximum employment and stable prices. If these two objectives come into conflict, we will make policy choices based on how far the economy is from each target and how long it is estimated to take to close these gaps."
