Introduction to the Federal Reserve and Tariffs
The Federal Reserve, led by Chair Jerome Powell, has been closely monitoring the effects of President Donald Trump’s tariffs on consumer prices. In a recent speech at the Fed’s annual Jackson Hole symposium, Powell warned that these tariffs are pushing consumer prices higher and will continue to do so in the coming months.
What the Federal Reserve Chair Said at the Symposium
Powell delivered his speech in front of roughly 100 economists, academics, and central bankers from around the world, receiving a standing ovation. He stated, "The effects of tariffs on consumer prices are now clearly visible. We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts." Powell cautioned that it is possible the "upward pressure on prices from tariffs could spur a more lasting inflation dynamic, and that is a risk to be assessed and managed."
Trump’s Tariffs and Inflation
Inflation remains above the Fed’s 2% target, though it has fallen significantly from its peak of 9.1% in mid-2022. Consumer prices rose 2.7% in July compared with a year earlier, while core prices, excluding food and energy, were up 3.1%. Economists say tariffs are starting to show up in higher prices for imported goods such as shoes, toys, and furniture, categories that have been directly affected by Trump’s new trade measures.
The State of the Labor Market
The labor market has cooled after two years of strong job growth. Hiring has slowed significantly in 2025, but unemployment remains low by historical standards. Powell said reduced immigration has meant fewer jobs are required to keep the jobless rate steady. However, he acknowledged that a weaker pace of hiring raises the risk of a sharper downturn.
A September Rate Cut is Coming
Financial markets rallied sharply following Powell’s remarks, taking them as a signal that the Federal Reserve is preparing to lower borrowing costs. The S&P 500 jumped 1.4%, while the Dow Jones Industrial Average surged 716 points, or 1.6%, on track to surpass its all-time high. Bankrate senior analyst Ted Rossman said Powell’s speech gave investors clarity and was "definitely a market-mover." He added, "Stocks have rocketed higher and bond yields are down as the door seems wide open for a September rate cut."
Conclusion
In conclusion, the Federal Reserve is closely monitoring the effects of President Donald Trump’s tariffs on consumer prices and the labor market. While inflation remains above the Fed’s 2% target, Powell has signaled that a September rate cut is likely, which has rallied financial markets. The Fed will continue to assess and manage the risks associated with tariffs and inflation, with the goal of avoiding an unnecessary recession. As the economy continues to evolve, it is essential to stay informed about the latest developments and their potential impact on the economy and financial markets.
