Illustration: Tang Tengfei/GT
US Federal Reserve Board Chair Jerome Powell told lawmakers on Tuesday that recent economic data would have likely justified continuing to lower interest rates if not for concerns that higher tariffs might derail the central bank’s years-long fight to defeat inflation, the Wall Street Journal (WSJ) reported. These comments underscore the delicate balance the central bank must maintain in its battle against inflation, now further complicated by the unpredictable ramifications of US trade policies.
The WSJ reported that officials broadly expect tariffs to catalyze an acceleration in price growth this summer, interrupting an uneven but broad-based inflation slowdown over the past two years. “We do expect [inflation] to move [up] in the summer and if we see it not happening, we will learn from that,” Powell was quoted as saying.
The tariff policies are increasingly casting a shadow over the US economy. The Fed may find itself in a unique position, closely monitoring the situation. On the one hand, there’s concern that tariffs could fuel inflation, potentially slowing the Fed’s pace of interest rate cuts. On the other hand, the heightened economic uncertainty due to tariffs exacerbates fears of an economic slowdown, suggesting a need for the Fed to cut rates more aggressively to bolster the economy. These opposing forces add a layer of complexity to the Fed’s decision-making process.
The Fed’s recent stance of maintaining steady interest rates may reflect the nuanced pressures exerted by both inflationary and economic downturns, as tariffs gradually manifest their impact from divergent directions. This approach is underscored by a series of economic indicators.
According to The Guardian, US prices continued their upward trajectory in May as both companies and consumers faced the challenges of higher tariffs. Annualized inflation ticked higher, to 2.4 percent, from 2.3 percent in April. Although the readings were softer than expected, some economists believe that the impact of tariffs on inflation will be much more significant this summer.
Meanwhile, the negative impact of tariffs on economic growth is becoming increasingly apparent. According to Reuters, US consumer confidence took an unexpected hit in June, as households grew more concerned about job prospects. This serves as another sign that labor market conditions are weakening amid the rising economic uncertainty brought on by US tariffs.
Economists and financial institutions widely recognize tariffs as a factor affecting the US economy. For instance, S&P Global Ratings Economics forecasts below-potential US real GDP growth of 1.7 percent in 2025 and 1.6 percent in 2026, as growth is restrained by slower population growth, tariffs, and other elements. The agency anticipates that real GDP growth will decline to 1.1 percent by the fourth quarter of 2025, down from 2.5 percent in the fourth quarter of 2024.
Inflation and economic growth offer a dual perspective on the impact of tariffs on the US economy, both of which are central to the Fed’s interest rate deliberations. According to Reuters, Federal Reserve Bank of New York President John Williams expects slower growth and higher inflation this year due in large part to trade tariffs, in comments that suggested he is in no rush to cut interest rates.
The Fed’s hesitation in adjusting interest rates is just one manifestation of the increased complexity tariffs have introduced to the economy. US tariff policies are revealing their effects on the economy through various channels. It’s undeniable that, on the whole, these impacts have been negative.
Some US trading partners are up against a July deadline to strike a deal to avoid the reinstatement of “reciprocal” tariffs. While US Treasury Secretary Scott Bessent said the administration is prepared to “roll the date forward” to allow good-faith trade negotiations to continue, as reported by Politico, there remains a palpable sense of concern in the market. This worry stems from the fear that as the deadline approaches, the uncertainty surrounding tariff policies could escalate, potentially leading to increased volatility in the economy.
Given the negative impact of tariff policies on the economy in recent months, the US should align with market expectations and alleviate concerns by halting the use of tariffs as a tool to further disrupt economic order. At the very least, more efforts should be made to prevent the reinstatement or increase of tariffs.
The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn