Powell Warns: Trump’s New Tariffs Could Fuel Inflation, Slow Growth

As financial markets reel from President Trump’s sweeping new tariffs, the Federal Reserve is adding fuel to the fire with a stark warning: this move could spark inflation and drag down U.S. economic growth.

In a carefully worded but unmistakably serious statement on Friday, Fed Chair Jerome Powell broke his usual silence on trade policy to express concern that the sudden escalation in tariffs could have larger-than-expected ripple effects across the economy.

Inflation on the Rise?

The tariffs—designed to target hundreds of billions worth of imported goods from trading partners including China and the EU—are expected to raise the cost of consumer goods and business inputs alike.

“Broad-based tariffs like these are, in effect, a tax on American consumers and businesses,” Powell said. “We expect a measurable upward pressure on prices in the near term.”

This means consumers could soon see higher prices at the grocery store, increased costs for electronics, and more expensive materials for manufacturers. The Fed is particularly concerned about import-heavy industries such as retail, construction, and automotive being squeezed from both sides—higher costs and reduced demand.

Growth Under Pressure

On top of inflation worries, Powell also signaled a downward revision to the Fed’s economic growth outlook.

“Tariffs of this magnitude may reduce business investment and slow hiring,” he said. “They introduce uncertainty, which tends to delay or cancel projects.”

With supply chains disrupted and international relations strained, the Fed believes that companies may hold back on capital spending and expansion plans. That’s bad news for GDP growth in 2025—and possibly a flashing yellow light for recession risk.

The Fed’s Dilemma

The timing of these tariffs couldn’t be more challenging for the Federal Reserve. The central bank has been walking a tightrope—trying to cool inflation without stalling the economy.

Powell’s remarks suggest the Fed might pause or even reverse its recent rate cuts if inflationary pressure intensifies. But if growth falters, it could also mean another round of stimulus or asset purchases later in the year.

In other words: the Fed is caught in a policy bind, and Trump’s trade actions just made it worse.

Market Reaction

Investors didn’t take Powell’s warning lightly. Stocks fell sharply on Friday, Treasury yields sank further, and futures markets are now pricing in increased volatility through the summer.

“Powell’s comments confirm what we feared,” said Alicia Torres, chief economist at Brightwave Capital. “The Fed is acknowledging that tariffs are no longer just a political issue—they’re now an economic one.”

What Comes Next?

The Federal Reserve is set to meet again in May, and Powell’s remarks are expected to dominate the conversation.

For now, all eyes are on whether the White House will double down—or step back—from its current tariff stance. With inflation risks rising and growth looking shaky, the next move could determine the direction of the economy for the rest of the year.