US Fed adds export warning to policy statement, flags rising economic risks amid Donald Trump’s tariff war

United States Federal Reserve Chairman Jerome Powell

The US Federal Reserve on Wednesday held interest rates steady for a fourth consecutive meeting but made significant changes to its policy statement, signaling growing concern over the economic impact of President Donald Trump’s sweeping tariff actions.

While keeping the benchmark rate unchanged at 4.25 to 4.5 percent, the Fed introduced new language acknowledging the effects of trade-related volatility. “Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace,” the statement said. The first part of this sentence is a new addition and marks the central bank’s first direct reference to export data in the current cycle -- a nod to the deepening trade war.

‘Solid pace’ of growth continues, but Trump tariffs loom over economy

The phrase ‘solid pace’ has featured in every Fed statement since January 2024 — including this one -- despite last week’s GDP data showing the first economic contraction in three years. In a notable shift, the Fed also warned that “uncertainty about the economic outlook has increased further” and that “risks of higher unemployment and higher inflation have risen,” signaling mounting anxiety about stagflation -- a rare mix of weak growth and elevated inflation.

Fed Chair Jerome Powell, in his post-decision briefing, directly cited the role of trade tensions in eroding confidence. “Surveys of households and businesses… reported a sharp decline in sentiment and elevated uncertainty about the economic outlook, largely reflecting trade policy concerns,” Powell said. He added, “It remains to be seen how these developments might affect future spending and investment in the labor market.”

Trump tariffs threaten inflation, slower growth, unemployment

Powell also warned that the administration’s sweeping tariff policy changes pose serious risks of higher inflation, slower growth, and rising unemployment. “The new administration is in the process of implementing substantial policy changes in four distinct areas: trade, immigration, fiscal policy and regulation,” he said. “The tariff increases announced so far have been significantly larger than anticipated. All of these policies are still evolving, however, and their effects on the economy remain highly uncertain.”

“If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment,” Powell warned.

The policy decision was unanimous. The US Fed also reiterated its intent to continue reducing its holdings of Treasury and mortgage-backed securities at the current pace, even as it acknowledged persistent inflationary pressures.

Trump maintains pressure on China with tariffs

Meanwhile, President Donald Trump, speaking just minutes before the Fed’s decision, ruled out removing the 145 percent tariff he recently imposed on most imports from China. Asked whether he would consider scaling back the tariff to bring China back to the negotiating table, Trump responded: “No.” The tariff escalation has effectively stalled trade between the world’s two largest economies, though talks between top US and Chinese officials are expected later this week.

With financial conditions tightening, business sentiment softening, and inflation still “somewhat elevated,” the Fed appears to be in a wait-and-watch mode.

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