Federal Reserve Chair Jerome Powell said Friday the central bank faces “significant uncertainty” as it attempts to navigate how Trump administration policies are shaping the economy.
In remarks at the Fed’s annual summit in Jackson Hole, Wyo., Powell said the Fed needs to determine whether the impact of Trump’s tariffs, immigration restrictions and tax cuts will be temporary, or lead to permanent changes in the U.S. economy.
“There is significant uncertainty about where all of these polices will eventually settle and what their lasting effects on the economy will be,” Powell said.
The Fed, Powell said, is facing two conflicting trends: rising inflation, which would call for higher rates, and a weakening labor market, which would lend support for cuts.
“In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate,” Powell said.
Powell said that while the impact of Trump’s tariffs are “clearly visible,” it is not yet clear if they will lead to a one-time increase in prices or trigger a longer-term inflation surge.
“We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts,” Powell said.
Powell’s final Jackson Hole speech as Fed chief comes as the central bank faces enormous pressure from President Trump to deeply slash interest rates.
Trump has raged against the Fed and Powell, specifically, for holding rates steady through the year after cutting them twice under former President Biden. While the Fed had anticipated cutting rates this year, Powell and other Fed officials blamed the delay on Trump’s steep tariffs.
Powell has defended the Fed’s decisions to keep rates steady as the banks waits to see how Trump’s tariffs will affect the economy — whether by boosting prices temporarily, causing a long-term increase in inflation, slowing growth or having little overall impact.
Inflation has also crept higher over the summer as the full weight of Trump’s tariff regime takes effect and ripples through the economy.
Even so, Powell has faced increasing opposition from within the Federal Open Market Committee — the panel of Fed officials responsible for setting rates — as the summer has worn on and Trump gets closer to choosing his successor.
Fed Governor Christopher Waller and Vice Chair of Supervision Michelle Bowman both voted against the FOMC’s decision to keep rates steady last month, calling instead for a 0.25 percentage point rate cut.
Waller and Bowman, both Trump appointees, are in the running to succeed Powell as chair when the latter’s term expires next year.
While both have been more sympathetic to Trump’s calls for rate cuts, they have not come close to supporting the crisis-level reductions the president is seeking.
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