Jerome H. Powell warned that Trump’s tariffs could lead to a “challenging scenario” for the central bank.
As President Trump’s trade policy has started to take shape, officials at the Federal Reserve have been more vocal about how such sweeping tariffs will affect the economy.
Jerome H. Powell, the chair of the central bank, recently warned that levies of the scope and scale Mr. Trump is pursuing would most likely lead to even higher inflation and slower growth than initially expected — the makings of what’s known as a stagflationary shock.
Mr. Powell expanded on those remarks on Wednesday, stressing that the tariffs announced so far go well beyond what the Fed had expected even in its worst-case scenario. In a speech at the Economic Club of Chicago, he laid out in greater detail how the Fed would deal with a situation in which its goals for a healthy labor market as well as low and stable inflation clashed with one another.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Mr. Powell said. “If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.”
In a moderated discussion after his speech, Mr. Powell said the Fed would have to make “what will no doubt be a very difficult judgment” about which of its goals to prioritize.
Mr. Powell’s comment accelerated a sell-off in stocks, with the S&P 500 down around 2.5 percent in afternoon trading. U.S. government bonds rallied, while the dollar continued to weaken against a basket of major currencies.
