On Wednesday, Federal Reserve Chair Jerome Powell defended the bank's decision to stabilize interest rates. He said that, while the economy seems solid, President Donald Trump's tariffs increase the risk of inflation and unemployment, warranting a pause in monetary policy to see how things go.
“If the large increases in tariffs that have been announced are sustained, they're likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment,” Powell said during a press conference.
A simultaneous increase in unemployment and inflation is known as "stagflation," which is not only rare but is also exceedingly difficult for the Federal Reserve and policymakers to solve, since the tactics that they would usually use to fix one would exacerbate the other.
For example, lowering interest rates leads to economic and job growth, but it often spikes inflation. Conversely, raising rates leads to slower growth that helps ease inflation, but it doesn’t help jumpstart the job market.
“The Fed didn't use the word ‘stagflation,’ but that's what it's warning about. Never a good moment when your central bank says that it's worried about *both* higher unemployment and higher inflation. That's a problem that monetary policy alone can't solve,” Justin Wolfers, an economics professor at the University of Michigan, wrote on X.
The Federal Reserve's decision to stabilize interest rates is likely to piss off Trump, who has demanded that Powell cut rates.
"The [European Central Bank] is expected to cut interest rates for the 7th time, and yet, 'Too Late' Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete 'mess!' Oil prices are down, groceries (even eggs!) are down, and the USA is getting RICH ON TARIFFS. Too Late should have lowered Interest Rates, like the ECB, long ago, but he should certainly lower them now. Powell’s termination cannot come fast enough!" Trump wrote on Truth Social on April 17.
He has even threatened to fire Powell for not lowering interest rates, only backing off when the stock market tanked as investors feared that Trump would end the Federal Reserve’s independence.
Meanwhile, Democrats are already seizing on Powell’s warning that tariffs could lead to stagflation.
"Donald Trump's tariffs mean you could suffer higher prices and lose your job AT THE SAME TIME. Forget dolls, families will be forced to make impossible choices between necessities like food, housing, and health care," Sen. Elizabeth Warren of Massachusetts wrote on X.
But even as the economic warning lights are flashing red, Trump says that he has no plans to lift his tariffs on Canada, a major U.S. trading partner, and that he is fine with a trade embargo on China.
"By not trading, we're losing nothing. So we're saving a trillion dollars. That's a lot,” Trump falsely claimed during a meeting with Canada’s newly elected Prime Minister Mark Carney on Tuesday.
Instead, he’s telling Americans that their children will just have to deal with having fewer toys. But if Trump keeps up his idiotic tariffs, the pain will be felt much further than the toy store.
Reprinted with permission from Daily Kos.
- How Trump Is Screwing Rural Seniors Who Elected Him ›
- As Trump Recession Looms, Fox Hastily Rewrites Economic History ›
- Crashing Out: Consumer Confidence Falls To Lowest Level Since Great Recession ›
- When 'Free Marketeers' At Silicon Valley Bank Begged For A Federal Bailout ›
Start your day with National Memo Newsletter
Know first.
The opinions that matter. Delivered to your inbox every morning
