The Fed President acknowledged that the increase in import tax increases is significantly greater than the forecast and the long -term instability around the tax policy can cause long -term economic damage.
At oneeventOrganized by the Chicago Economic Club on April 16, the President of the US Federal Reserve (Fed) Jerome Powell identified major changes in the policy of US President Donald Trump.
“These are basic changes. We have no modern experience to refer,” Mr. Powell said. He acknowledged that the import tax increase has been significantly greater than the forecast and the long -term instability around the tax policy can cause long -term economic damage.
Mr. Trump’s tax policy is pushing the economy into the path of growth, unemployment increases and higher inflation. These three things take place simultaneously. This situation has never been facing for about 50 years. “The Fed may be in a difficult situation when the dual target is conflicting with each other,” he added.
Economist Joe Brusuelas from RSM emphasized that the Fed is giving priority to controlling inflation than protecting the market. “Mr. Powell is more tougher than the market prediction,” he said in the report.
Mr. Powell also warned that new tariff policies could cause higher inflation and grow slower. “Tariffs increase costs and the scale of tax increase this time is much greater than the initial prediction,” he added.
This tough message makes the marketstockplunge. NVIDIA shares fell nearly 7% after the ban on the sale of new chips, resulting in S&P 500, which lost 2.2%, NASDAQ fell 3% and Dow Jones fell 1.7%, the strongest decrease in the day since December 2024.
Fed President Jerome Powell (Photo: Reuters).
Mr. Powell said the Fed will not adjust the policy immediately. They need more data to clearly determine the impact of new policies on the economy.
However, most economists forecast inflation scenario, increased unemployment and growth growth is only a matter of time, especially if the reciprocal tax takes effect after 90 days.
“Mr. Jerome Powell has issued a clear warning to Mr. Trump about the risk of high inflation and slow growth. It is also a statement that the Fed will not reduce interest rates at the call of the White House,” said David Russell, Director of the Global Market Strategy at the companyfinanceTradestation, judgment in the report.
Mr. Trump repeatedly stated that foreign countries will have to pay taxes. However, the Fed chairman emphasized that it was not true. He explained that the import tax policies will increase the unemployment rate when the economy slowed down. “It is likely that inflation will also increase. Speaking of customers, a part of the import tax burden will be paid by the people,” he said.
Fed President Chicago Austan Googsbee last week said at an event in New York that Mr. Trump’s tax policy was putting the Fed in a similar difficult situation.
“Import tax is a shock of supply. It makes both Fed’s missions worse at the same time. The price increases, the reduction and growth go down. There is no manual for the Fed to cope with this shock,” he told CNN.
Although the market is expecting 4 times to cut interest rates this year, according to CME Fedwatch, Mr. Powell is cautious and said that the Fed can “wait for more clear signals” before acting. When the job market and consumer spending were still strong and he said the Fed was “in a good position to be patient”.
As of April 2025, the Fed kept the standard interest rate within 4.25% – 4.5% from December 2024. At the March 2025 meeting, the Fed continued to maintain this interest rate and signaled that there would be 2 interest cuts this year, expected to start from the middle of the year.
