Federal Reserve Chair Powell Warns Tariff Inflation Risk Amid Monetary Policy Shift

Federal Reserve Chair Jerome Powell has highlighted the inflationary pressures caused by higher tariffs, noting that while these contribute to price increases, the effects are expected to be relatively short-lived and amount to a one-time shift in the price level. Powell acknowledged the risk that tariff-driven inflation could persist, but current indicators such as labor market conditions and inflation expectations do not suggest a prolonged issue. He also emphasized that inflation excluding tariffs is nearing the Fed's 2% target, indicating that monetary policy remains slightly restrictive to balance inflation control with employment goals. Meanwhile, Reserve Bank member Prasanna Gai pointed out that US tariffs have acted as a negative demand shock for small open economies like New Zealand, complicating monetary policy by causing households and businesses to hesitate in spending and investment. Gai stressed the importance of clear central bank communication and decisive action to navigate economic uncertainty. Together, these insights underscore the challenges global central banks face in managing inflation amid external shocks like tariffs, while maintaining economic stability and growth.