Powell says Fed keeps eye on tariff risk

The Trump administration’s tariff plans may well just cause a one-time jump in prices, but the risk it could cause more persistent inflation is large enough for the central bank to be careful in considering further rate cuts, Federal Reserve Chair Jerome Powell told a US Senate panel on Wednesday.

- HOWARD SCHNEIDER ANN SAPHIR

Though economic theory may point to tariffs as a one-off shock to prices, “that is not a law of nature,” said Mr Powell, detailing why the central bank wants more information about the ultimate level of tariffs and the way they impact pricing and public expectations about inflation before lowering borrowing costs any further.

“If it comes in quickly and it is over and done then yes, very likely it is a one-time thing,” that won't lead to more persistent inflation, Mr Powell said. But “it is a risk we feel. As the people who are supposed to keep stable prices, we need to manage that risk. That's all we're doing,” through holding rates steady for now.

The effects of tariffs “could be large or small. It is just something you want to approach carefully. If we make a mistake people will pay the cost for a long time.”

Fed officials still expect to cut interest rates this year, but the timing is uncertain as officials wait on coming trade deadlines and hope for more certainty about the scope of the tariffs that will be imposed and the ways that rising import levies influence prices and economic growth.

Two days of hearings did little to shift expectations around Fed policy, with investors still anticipating two rate cuts this year.

But it did highlight the persistent rift between the Fed chair and President Donald Trump, who wants the Fed to cut rates immediately.