Federal Reserve Chair Jerome Powell issued a stark warning on Wednesday: tariffs imposed by the Trump administration will drive up consumer prices. His statement comes as the central bank raised its 2025 inflation forecast to 2.8%, up from 2.5%, largely due to the economic impact of trade restrictions.
“A good part of it is coming from tariffs,” Powell said, adding that inflationary pressures could slow progress toward the Fed’s 2% target.
Since returning to office in January, President Donald Trump has significantly expanded tariffs, affecting over $1 trillion in imports from China, Canada, Mexico, and other trade partners. These measures, aimed at protecting U.S. industries, have sparked concerns about rising costs for businesses and consumers. Economists estimate that tariffs could add $1,200 in annual expenses for the average American household.
“Tariffs are simply inflationary, despite what President Trump may tell people,” said Bradley Saunders, an economist at Capital Economics. He explained that businesses facing higher import costs will likely pass those expenses onto consumers.
In addition to consumer goods, tariffs are expected to increase the price of cars and homes. The Anderson Economic Group estimates auto prices could rise by $4,000 to $12,500, while the National Association of Home Builders projects a $9,200 increase in the cost of a typical home.
Despite these concerns, the White House maintains that tariffs will create new jobs and strengthen the economy. Treasury Secretary Scott Bessent downplayed inflation fears, calling tariffs a “one-time price adjustment” while noting declining oil and mortgage rates.
With economists predicting core inflation could reach 3% in 2025, Powell acknowledged the uncertainty ahead. “It’s really hard to know how this is going to work out,” he said.
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