US Fed Chair Jerome Powell Warns Trump Tarrifs Will Tie Their Hands To Help Economy

[Economy 52,851]

https://finance.yahoo.com/news/powell-sees-challenging-scenario-for-fed-if-trump-tariffs-stoke-inflation-and-slow-growth-173002914.html

 

Federal Reserve (USAs name for their Central Bank) Chairman Jerome Powell stated what was already obvious to economists, that tarrifs will make their job difficult due to conflicting mandates

 

A Central Banks primary mandate is generally to control inflation and as a secondary mandate, maintain economic growth and employment

 

Normally the two go hand in hand. When the economy weakens usually inflation also weakens and its safe to lower interest rates or in some cases even print money to buy up securities or buy bonds to lower rates further and help economy (called Quantitative easing)

 

When the economy is hot and can handle higher interest rates, inflation also tends to run hotter as demand and wages rise and the economy needs tigher monetary policy which includes higher interest rates and sometimes currency destruction via quantitative tightening (the reverse of quantitative easing)

 

However with tarrifs you can get slow economic growth, rising unemployment, yet still rising inflation. This rare combination is also known as stagflation and it is a real headache for Central Bankers from a policy perspective

 

In the case of the US Fed, Jerome Powell is expressing concern that should the US go into recession, the potential inflation from tarrifs will need to be weighed and may prevent them from helping as proactively as they normally would. In essance, hes saying he may not be able to lower rates much if the economy tanks