Chicago, Illinois – Federal Reserve Chair Jerome Powell delivered a speech on Wednesday expressing concern over the dilemma facing the central bank in balancing inflation control with economic growth support. Powell highlighted the uncertainty surrounding the potential impact of President Donald Trump’s tariffs and the challenge of aligning the Fed’s dual-mandate goals.

During his speech at the Economic Club of Chicago, Powell acknowledged the expectation of higher inflation and lower growth, emphasizing the need for careful consideration of where the Fed should prioritize its focus. He emphasized the importance of assessing the economy’s distance from each goal and the different time horizons for closing the respective gaps.

The Fed’s primary objective is to ensure stable prices and full employment, with tariffs posing threats to both. While tariffs could lead to inflation due to acting as taxes on imports, Powell noted that the direct link to inflation historically has been inconsistent. In response to a question following his speech, Powell stated that tariffs are likely to push the economy further away from the Fed’s goals for the remainder of the year.

In terms of policy adjustments, Powell did not provide specific indications on interest rate changes but mentioned the Fed’s current stance of awaiting greater clarity before making any policy shifts. The Fed might opt to keep interest rates steady or increase them to curb demand in the event of higher inflation, while lower rates could be considered in response to slower growth.

Market expectations suggest that the Fed may start reducing rates in June, with the possibility of implementing three or four quarter-percentage-point cuts by the end of 2025. Powell and other Fed officials view tariffs as temporary price impacts, but the broad scope of the Trump administration’s duties could alter this trend.

Powell highlighted the rise in near-term inflation measures based on surveys and market indicators, with the longer-term outlook aligning with the Fed’s 2% goal. Anticipated inflation rates for March are projected at 2.6%. Powell stressed that tariffs are likely to cause temporary inflation increases, and their persistence will depend on various factors, including the size of effects and impact on longer-term inflation expectations.

In addressing the threats to both growth and inflation, Powell referenced the expected GDP report for the first quarter, projecting minimal growth due to a slowdown in various sectors and the impact of strong imports driven by tariff concerns. Despite the anticipated slowdown, Powell described the economy as being in a solid position.

Additional data indicated a better-than-expected increase in retail sales for March, driven partly by car purchases in anticipation of tariffs. The Atlanta Fed adjusted its GDP growth projection for Q1, factoring in unusual fluctuations in gold imports and exports. Overall, Powell’s speech emphasized the challenges posed by tariffs and the importance of managing inflation expectations amid economic uncertainty.