- Fed Chair Powell expects tariff-driven inflation to recede by mid-2026.
- The central bank maintains a cautious stance, monitoring data and labor markets.
- Easing price pressures could support a gradual normalization of policy.
Powell Signals Relief on Tariff Inflation
Federal Reserve Chair Jerome Powell indicated on Thursday that inflation fueled by tariffs is likely to ease over the next two quarters, providing a cautiously optimistic outlook for price stability. Speaking at a press conference, Powell noted that the transitory nature of tariff-related price increases is becoming evident, with goods inflation expected to cool as supply chains adjust. "We anticipate tariff effects to diminish through the first half of next year," he said, adding that the path depends on how quickly the pass-through to consumers fades.
The remarks come as the Fed keeps interest rates steady, with policymakers wary of lingering price pressures in services. Powell emphasized that while tariff inflation is receding, the central bank remains data-dependent, watching for signs of sustained progress toward its 2% target. "We need to see more evidence that inflation is on a sustainable downward path before adjusting policy," he explained.
Markets reacted positively, with Treasury yields edging lower as investors priced in a potential rate cut later this year. Analysts at major banks noted that Powell's comments align with their view that tariff impacts are temporary. "The Fed is signaling that the worst of tariff inflation is behind us," said one economist, speaking on condition of anonymity. "But the timing of any easing will hinge on labor market resilience."
Still, risks remain. Global trade tensions could flare anew, and wages are rising steadily, which might keep services inflation elevated. Powell acknowledged these uncertainties, but struck a balanced tone: "We are not declaring victory, but we are encouraged by the trend." The Fed's next meeting in June will provide further clarity as new data rolls in.