Powell says 'no risk-free path' for U.S. economy as tariffs hit

Federal Reserve Chairman Jerome Powell said Tuesday that there is no risk-free path for the U.S. economy as tariffs kick in.

Powell spoke Tuesday in Providence, R.I. It was his first speech since the central bank lowered key interest rates last week.

"Two-sided risks mean that there is no risk-free path," Powell said.

The chairman said President Donald Trump's tariff-focused overhaul of global trade could lead to price increases in the coming months.

"The overall economic effects of the significant changes in trade, immigration, fiscal and regulatory policy remain to be seen," Powell said. "A reasonable base case is that the tariff-related effects on inflation will be relatively short lived – a one-time shift in the price level."

But it won't come all at once, the central banker said.

"A 'one-time' increase does not mean 'all at once.' Tariff increases will likely take some time to work their way through supply chains," Powell said. "As a result, this one-time increase in the price level will likely be spread over several quarters and show up as somewhat higher inflation during that period."

However, the path forward remains cloudy.

"But uncertainty around the path of inflation remains high," Powell noted. "We will carefully assess and manage the risk of higher and more persistent inflation. We will make sure that this one-time increase in prices does not become an ongoing inflation problem."

Last week's rate cut was the Fed's first since late 2024. The move lowers the benchmark interest rate to a range between 4% and 4.25%, the lowest level in nearly three years. That's down from a target of between 4.25% and 4.5%, where the Fed held it for most of Trump's second term. Officials signaled the possibility of two more rate cuts this year.

Trump wants even lower rates and has aggressively pushed the independent central bank to lower rates.

Trump has said the U.S. should have the lowest rates in the world.

Trump's newest appointee to the FOMC, Stephen Miran, was the only member to oppose the move. He wanted a half percentage point cut.

Powell said support for a larger cut was weak.

"There wasn't widespread support at all for a 50 basis point cut today," the chairman said at a news conference last week after the meeting. "I think we've done very large rates hikes and very large rate cuts in the last five years, and you tend to do those at a time when you feel that policy is out of place and needs to move quickly to a new place. That's not at all what I feel right now."