The Fed is Still Not Dovish! Blames Tariff as Cause for Uncertainty

In a statement that continues to reverberate through economic circles, Federal Reserve Chair Jerome Powell, during his speech at the Economic Club of Chicago on April 16, underscored the significant economic risks posed by President Donald Trump's ongoing tariff hikes. 

With a clear focus on rising inflationary pressures and the potential for slower economic growth, Powell delivered a measured yet stern warning about the tariff-induced uncertainty clouding the economic outlook.

Tariffs: The Unseen Catalyst of Inflation

Powell’s remarks come at a critical juncture, as global markets brace for the continued fallout from escalating trade tensions. He noted that the tariff increases introduced by the Trump administration had far surpassed initial forecasts. 

While the immediate concern revolves around inflationary pressures, Powell suggested that the economic effects of these tariffs would likely extend beyond the temporary spike in prices, potentially embedding persistent inflationary trends into the U.S. economy.

"The level of the tariff increases announced so far is significantly larger than anticipated," Powell stated, adding that these policy changes could lead to higher inflation and slower growth. 

He was quick to clarify, however, that it was not the Fed’s intention to allow any "one-time increase in the price level" to morph into a prolonged inflation issue.

The core of Powell’s message was clear: the balance between the Fed's dual mandate of controlling inflation and promoting employment will hinge on the ongoing evaluation of these tariffs’ economic impact. 

"Avoiding a long-term inflationary effect will depend on the impact of the tariff hikes, the time it takes for prices to change, and keeping longer-term inflation expectations well anchored," Powell explained.

Read Also: Canada Slaps 25% Tariff as More Critics Protest Against US Trade Policy Escalation

Fed's Cautious Approach Amid Economic Uncertainty

Despite the mounting challenges posed by tariffs, Powell emphasized that the Federal Reserve was committed to waiting for greater clarity before making any shifts in its policy stance. 

This stance essentially rules out any immediate interest rate cuts—a point that President Trump has fiercely lobbied for in recent months.

Trump, often vocal about his dissatisfaction with the Fed’s cautious approach, recently urged Powell to consider more aggressive rate cuts, pointing to the March Consumer Price Index (CPI) reading of just 2.4%, which Trump described as evidence of a lack of inflation. 

However, Powell’s more nuanced perspective on inflation and its complexities reflects his reluctance to capitulate to political pressures in a period marked by heightened uncertainty.

Read Also: Crypto vs. Chaos: What Trump’s New Tariffs Mean for Markets

Economic Outlook: Slower Growth, Steady Job Gains

Powell’s remarks were not all doom and gloom, however. Despite the challenging economic landscape, Powell affirmed that the U.S. economy remained resilient, albeit showing signs of a slowdown. 

Growth had slowed, and overall consumer spending decelerated in the first quarter of 2025. While job growth has moderated compared to last year, nonfarm payrolls continued to grow at a steady rate of 150,000 jobs per month.

Furthermore, Powell was keen to highlight that inflation had eased significantly from its pandemic highs, without triggering the painful side effect of rising unemployment. 

This moderation in inflation, he noted, is a testament to the Fed's successful policy adjustments made in the wake of the pandemic-induced economic upheaval.

Read Also: Rumours Spreading on Trump's 90-Day Tariff Pause: Is It Fake News?

Pressure from the White House

One of the underlying tensions in Powell’s tenure at the Fed has been the external pressure from President Trump, particularly concerning interest rate decisions. 

Trump has long advocated for rate cuts, arguing that the Fed’s reluctance to lower rates is harming the economy’s potential. With the recent CPI figures falling short of expectations, Trump again reiterated his call for an aggressive monetary response, claiming there was "NO INFLATION" and demanding that the "slow-moving Fed" act more swiftly.

Despite the political pressure, Powell has remained resolute in his approach, underscoring that the Fed's primary responsibility is to navigate the economic landscape based on long-term data and comprehensive analysis—not political expediency. 

His tenure, set to extend until May 2026, will likely continue to be defined by this balancing act between external pressures and his commitment to maintaining the central bank's independence.

Read Also: Understanding Trump’s Tariff Policy: Market Turmoil and Global Trade Challenges

The Crypto Market's Reaction

In a curious turn of events, Powell’s cautious stance also had rippling effects in the cryptocurrency market. Bitcoin, which had been trading above the $85,300 mark, saw a swift decline, slipping to around $84,200 within the span of just an hour following Powell’s remarks. 

The crypto market, highly sensitive to macroeconomic policies, reacted sharply to the Fed’s stance of no immediate rate cuts, reflecting broader uncertainty about the global economic environment.

FAQ

Q: Why is Jerome Powell against cutting interest rates immediately?
A: Powell stated that the current economic data does not support an immediate rate cut. He emphasized the need for more clarity regarding the long-term effects of tariff hikes before making policy adjustments. Despite external pressures, particularly from President Trump, the Fed is prioritizing economic stability and data-driven decision-making.

Q: How do tariffs lead to inflation?
A: Tariffs raise the cost of imported goods. Businesses often pass these higher costs on to consumers, causing a general increase in prices. Powell warned that the tariffs imposed are much larger than anticipated, potentially leading to both temporary and persistent inflation.

Q: What impact did Powell's remarks have on the crypto market?
A: Following Powell’s statement indicating no immediate interest rate cuts, Bitcoin dropped sharply—from above $85,300 to around $84,200. This reflects how sensitive the crypto market is to Federal Reserve policy, particularly decisions affecting liquidity and investor sentiment.

Q: Is the U.S. economy weakening?
A: Powell acknowledged signs of a slowdown, particularly in growth and consumer spending during Q1 2025. However, he also emphasized that the economy remains in a solid position overall, with continued job growth and significantly lower inflation compared to post-pandemic levels.

Q: What is the timeline for Powell’s leadership at the Fed?
A: Powell’s term as Fed Chair ends in May 2026. According to Treasury Secretary Scott Bessent, the White House has already begun preparing to interview potential successors, signaling possible shifts in the Fed's direction in the near future.

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