Trump prices likely to increase inflation, slow economic growth

By Christopher Rugaber, writer AP Economics

Arlington, Virginie (AP) – The new extensive prices of the Trump administration will probably lead to higher inflation and slower growth for the American economy, the president of the Federal Reserve Jerome Powell said on Friday.

Powell said the prices, and their probable impacts on the economy and inflation, are “much greater than expected”. He also said that import taxes will probably lead to “at least a temporary increase in inflation”, but added that “it is also possible that the effects can be more persistent”.

“Our obligation is to … ensure that an ad hoc increase in the price level does not become a problem of inflation in progress,” said Powell in the remarks presented at a conference of the company to advance commercial publishing and writing.

The focus made by Powell on inflation suggests that the Fed will probably maintain its interest rate unchanged at around 4.3% in the coming months, rather than reducing them anytime soon. Higher borrowing costs can help slow the economy and cool inflation. Wall Street investors, on the other hand, are now expecting five interest rate drops this year, a number that has increased since President Donald Trump announced the prices on Wednesday.

Powell also pointed out that the complete impact of prices on the economy is not yet clear, and that the Fed will remain on the sidelines until it has more clarity on the economy. He has recognized that many companies have said that they hold new investments until they have a better idea of ​​the impact of prices.

“There is a lot of expectations and seeing taking place, including us,” said Powell during a question and answers session. “And it seems to be the right thing to do in this period of uncertainty.”

Trump, separately, urged Powell to reduce rates, citing a drop in inflation and energy prices on his social media platform, Truth Social.

“It would be an ideal moment for the president of the Fed, Jerome Powell, to reduce interest rates,” wrote Trump. “Cut interest rates, Jérôme and stop making politics!”

Economists expect the prices weakening the economy, perhaps threatening hiring and increasing prices. In this scenario, the Fed could reduce rates to strengthen the economy, or it could maintain unchanged rates – or even hike – to fight inflation. Powell’s comments suggest that the Fed will mainly focus on inflation.

Powell’s remarks occur two days after Trump has unveiled scanning prices that have changed the world economy, incited reprisals by China and sent shares in the United States and abroad.

Powell’s description of the impact of prices was more negative than last month, when he said that any inflation resulting from prices would probably be temporary.

Lower growth and higher prices are a delicate combination for the Fed. As a general rule, the central bank would reduce its key interest rate to reduce loan costs and stimulate the economy in the event of slower growth, while this would increase rates – or high maintaining – to slow out spending and fight inflation.

“The Fed is in a difficult situation with the accelerating inflation and the economy ready to slow down,” said Kathy Bostjancic, chief economist in Nationwide.

The Fed is held by law to seek maximum employment and price stability, which it defines as an annual inflation of 2%. Powell acknowledged that prices, which could cause job losses and increase prices, could make these two objectives more difficult to achieve.

“The two goals … are in tension-or they can be,” he said.

Powell has said that the economy and hiring remain solid for the moment, but it has noted that consumers and businesses have become more pessimistic about the future.

He also declared that inflation had dropped sharply from its peak in 2022, but said that the recent progress towards the 2% target of the Central Bank “have slowed down”.

Some positive news arrived on Friday when the government indicated that hiring accelerated in March, with 228,000 added jobs, although the unemployment rate reached 4.2%, compared to 4.1%.

However, these figures measure hiring in mid-March, before the scope of tasks became clear. The prices have also increased uncertainty as to the way in which the economy will be released in the coming months, which could limit the will of companies to invest and hire.

Originally published: April 4, 2025 at 8:36 a.m.