Federal Reserve chair Powell says tariffs, not demand, driving US inflation

Washington: Federal Reserve Chair Jerome Powell said that higher US inflation is being driven mainly by tariffs on goods, not excess demand — an assessment that could shape expectations for global trade-linked economies.

“These elevated readings largely reflect inflation in the goods sector, which has been boosted by the effects of tariffs,” Powell said on Wednesday (local time), while stressing that price pressures in services continue to ease.

The Federal Open Market Committee kept interest rates unchanged, holding the benchmark rate in a range of 3.5 to 3.75 per cent. Powell said the current policy stance is “appropriate” as inflation remains above the Fed’s 2 per cent goal.

Powell said most of the tariff’s impact on prices has already passed through the economy. “A lot of it has,” he said, calling tariffs “likely to move through and be a one-time price increase.”

He said inflation in goods has been pushed higher by trade measures, while services show a different trend. “Disinflation appears to be continuing in the services sector,” Powell said.

Powell said core PCE inflation rose 3.0 per cent over the 12 months ending in December, while total PCE inflation rose 2.9 per cent. He said inflation expectations remain stable.

“Most measures of longer-term expectations remain consistent with our 2 per cent inflation goal,” he said.

The Fed chair said the central bank is watching how tariff-related price increases evolve. He said the expectation is that goods inflation tied to tariffs will peak and then begin to ease.

“The expectation is that we will see the effects of tariffs flowing through goods prices peaking and then starting to come down,” Powell said, assuming no major new tariff increases are introduced.

Powell said the Fed is not setting a timetable for future policy changes. “Monetary policy is not on a preset course,” he said, adding that decisions will be made “on a meeting-by-meeting basis.”

He said the US economy is growing at a solid pace, with consumer spending “resilient” and business investment continuing to expand, even as housing activity remains weak.

Powell said inflation progress has stalled in recent months, but argued that the underlying picture is more nuanced because tariff effects are concentrated in goods prices.

“If it weren’t from tariffs, it might mean it’s from demand,” he said, adding that demand-driven inflation would be “a harder problem to solve.”

The U.S. is one of India’s largest trading partners, and changes in American trade policy and inflation trends can affect global supply chains, export pricing, and investment flows. Tariffs typically raise prices by increasing import costs. Central banks often treat such increases as temporary if they do not trigger broader inflation expectations.

IANS