• Federal Reserve Chair Jerome Powell expects recent tariffs to create inflationary pressure but views the impact as temporary rather than persistent.
  • The Fed has paused rate cuts in response to tariff implementation, with inflation forecasts rising materially across the board.
  • Core goods prices are already showing measurable increases, with tariff passthrough rates estimated between 61-80% as of June.

Federal Reserve Chair Jerome Powell indicated that the substantial tariffs implemented in 2025 will push up inflation but are unlikely to cause persistent price increases that would require a more aggressive monetary policy response. Speaking at the European Central Bank's Sintra monetary policy conference, Powell acknowledged the Fed's cautious approach, stating that "we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs."

The scale of the 2025 tariff measures represents a dramatic expansion of trade restrictions, with the actual average effective tariff rate reaching 10% in June and climbing to approximately 11.5% by August. This marks a substantial increase from just 2.4% at the beginning of the year. Through August, these new tariffs have generated $88 billion in revenue, with $23 billion collected in August alone, according to recent data.

Inflationary effects are already materializing in measurable ways. Core goods prices were 1.9% above their pre-2025 trend as of June, with particularly sharp increases in window and floor coverings, appliances, and electronics. Researchers estimate that between 61-80% of the new 2025 tariffs were passed through to consumer core goods prices in June alone, suggesting markets are still adjusting to the new trade landscape.

Powell's characterization reflects the Fed's technical framework for distinguishing between one-time price level shifts and ongoing inflationary pressures. The Federal Open Market Committee's June 2025 Summary of Economic Projections maintained the forecast of two 25 basis point cuts by year-end—unchanged from December projections—but reduced the expected cuts in 2026 by one, representing a relative tightening. A Fed spokesperson declined to comment further when reached after Powell's remarks.

The 2025 tariffs differ substantially from the 2018 trade actions in both scale and economic context. The earlier measures primarily targeted intermediate goods and raised the average effective tariff rate by approximately 1 percentage point, while the current measures have increased the actual effective rate by nearly 9 percentage points. This broader implementation could potentially affect world prices, forcing some of the burden onto foreign producers rather than domestic consumers.

Economic projections suggest GDP growth would slow while inflation rises under the tariff regime. The approximate effective tariff rate paid reached 9.7% by the end of July, up from 2.3% at the start of 2025. However, if tariff rates were to stabilize at lower levels—for example, permanently at 5%—this could imply a material upgrade to growth forecasts for the second half of 2025 and likely reduce core CPI projections.

The Fed's approach treats tariff-driven price increases as level effects rather than persistent inflation affecting its mandate. Policymakers have also expressed concern that tariffs could weaken output and lower employment, which might justify looser rather than tighter policy. This measured response suggests confidence that the inflationary impulse from tariffs will prove transitory even as the Fed acknowledges near-term price pressures.

Correction: An earlier version of this article misstated the effective tariff rate in July. The correct figure is 9.7%, not 9.5%.