The Federal Reserve is monitoring President Donald Trump’s tariff policy, which will likely increase inflation, but is not in a rush to adjust its monetary policy because of it, Fed Chair Jerome H. Powell said March 7.
The Trump administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy and regulation, Powell said at the University of Chicago Booth School of Business 2025 U.S. Monetary Policy Forum in New York.
“While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their likely effects remains high,” Powell said. “As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves. We do not need to be in a hurry and are well positioned to wait for greater clarity.”
During a question-and-answer session, Powell said tariffs are expected to raise costs on U.S. exporters, importers, retailers and consumers, but at this point, it’s too early to determine much. “We’re at a stage where we’re still very uncertain about what will be tariffed, for how long (and) at what level?” he said. “We’re going to have to wait to see all of that.”
Trump on March 4 implemented 25% tariffs on goods imported from Canada and Mexico, with an additional 10% tariff on Canadian energy products. But on March 6, he exempted Mexican and Canadian goods covered by the North American trade agreement known as USMCA until April 2. Also on March 4, a 10% tariff that Trump slapped on Chinese goods in February was doubled to 20%.
Just how Trump’s tariff policy will impact the Fed remains a question.
For now, Powell said the central bank to adjust policy as needed.
“If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly,” he added. “Our current policy stance is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.”
At its most recent meeting on Jan. 29, the Federal Open Market Committee left the federal funds rate unchanged at a range of 4.25% to 4.5%. The decision, which was unanimous among the committee’s 12 members, came after three successive rate cuts to close out 2024 — quarter-point cuts in December and November, and a half-point reduction in September.
The Fed’s next meeting is March 18-19 and market participants expect it to hold rates steady once more.
Core personal consumption expenditures, or core PCE, the Fed’s preferred inflation gauge, rose 2.6% year-over-year in January, down from 2.9% year-over-year in December.
