Inflation still largely driven by tariffs, says Fed Chair Jerome Powell

Jerome Powell, Chair, U.S. Federal Reserve

The U.S. Federal Reserve Chair Jerome Powell said the central bank remains firmly committed to bringing inflation back to its two percent target, but stressed that policymakers now face a more complicated economic landscape as labour-market risks rise even as inflation pressures are increasingly concentrated in tariffs.

“Everyone should understand, and the surveys show that they do, that we're committed to 2 percent inflation, and we will deliver 2 percent inflation,” Powell said in speech following the FOMC rate decision. However, he noted that “it's a complicated, unusual, difficult situation where the labour market is also under pressure,” pointing to signs that job creation could actually be in the negatives.

On inflation, Powell said a lot the current overshoot in the key figure is not broad-based but as a result of tariff-related price increases. “If you get away from tariffs, inflation is in the low twos, right? So it's really tariffs that's causing most of the inflation overshoot,” he said. He added that the cental bank views these increases as “a one-time price increase,” and emphasised that the Federal Reserve's job is to make sure that it is. "And we will do that job.”

The Fed Chair also recognized that the public’s frustration with elevated living costs, even as inflation has eased. “We hear loud and clear how people are experiencing really high costs,” he said, noting that these pressures partly stem from “embedded higher cost due to higher inflation in 2022 and 2023.”

Going forward, the central bank’s goal will be not only to restore price stability but also to support income gains. The economy, he said, will need some years where real compensation is significantly positive, so nominal wages, are higher than inflation for "people to start feeling good about affordability."

“We're trying to keep inflation under control but also support the labour market and strong wages,” Powell said. “People feeling economically healthy again is the goal.”

Earlier this day, the U.S. Federal Reserve trimmed its benchmark interest rate by 25 basis points, marking a third consecutive cut, bringing rate down to the 3.5 to 3.75 percent range, its lowest level since 2022.