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Tariffs will hit US economy and raise prices - Federal Reserve Chair Jerome Powell Donald Trump attacks Fed boss for not cutting interest rates
(about 20 hours later)
US economic growth will be hit and prices will rise for consumers as a result of new tariffs on goods entering the country, the head of America's central bank has warned. Donald Trump has attacked the head of the US central bank for not cutting interest rates, stating that Jerome Powell's "termination cannot come fast enough!".
Jerome Powell, chair of the Federal Reserve, said the import taxes recently announced by President Donald Trump were larger than the bank had expected, going beyond the higher end of its estimates. The US president took to social media to renew his criticism of Powell ahead of the third interest rate cut this year by European Central Bank (ECB).
His comments followed a period of turmoil on global stock markets as investors reacted to trade tariffs coming into force and the escalating trade war between the US and China. On Thursday, it announced that it had reduced the key rate "owing to rising trade tensions".
Powell said surveys of households and businesses reported a "sharp decline" in their sentiment over the economic outlook, largely due to tariff concerns. Trump, who nominated Powell as Federal Reserve chair in 2017 during his first term, wrote that he "is always TOO LATE AND WRONG" on reducing borrowing costs.
Trump continued: "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."
While oil prices have fallen since the start of the month when Trump unveiled his tariff regime, eggs prices have risen to $6.23 per dozen, according to official data.
Meanwhile, the BBC has found no evidence for Trump's claims about how much money the US is collecting from tariffs.
As Trump attacked Powell, Christine Lagarde, president of the ECB defended her American counterpart.
"I have a lot of respect for my friend and esteemed colleague Jay Powell," said Lagarde as she discussed the decision to cut European interest rates from 2.5% to 2.25%.
"We have a solid, steady relationship amongst central bankers."
No global recession despite US tariffs, says IMF
The president lashed out after Powell said on Wednesday that US economic growth will be hit and prices will rise for consumers as a result of Trump's tariffs.
He said the import taxes were larger than the bank had expected, going beyond the higher end of its estimates.
There has been turmoil on global stock markets as investors reacted to the tariffs and an escalating trade war between the US and China.
Mr Powell said: "The level of the tariff increases announced so far is significantly larger than anticipated.
"The same is likely to be true of the economic effects, which will include higher inflation and slower growth."
The US president has said tariffs will boost US manufacturing and jobs but economists have warned they risk fuelling inflation. Trump campaigned on cutting inflation.
It is not the first time that Trump has targeted Powell, who he nominated to replace Janet Yellen who the president accused of keeping interest rates too low.
The president's campaign promises included calls for lower interest rates in order to bring relief to borrowers.
Since returning to office, Trump has stoked a trade war by introducing a 10% tax on goods being imported to the US from the vast majority of countries.Since returning to office, Trump has stoked a trade war by introducing a 10% tax on goods being imported to the US from the vast majority of countries.
He has escalated tariffs further with China by putting a 145% tax on Chinese goods, though there are some exemptions for smartphones. China has hit back with tariffs of 125% on US products. The White House said on Wednesday that when the new tariffs are added on to existing ones the levies on some Chinese goods could reach 245%.He has escalated tariffs further with China by putting a 145% tax on Chinese goods, though there are some exemptions for smartphones. China has hit back with tariffs of 125% on US products. The White House said on Wednesday that when the new tariffs are added on to existing ones the levies on some Chinese goods could reach 245%.
"The level of the tariff increases announced so far is significantly larger than anticipated," Powell said in his starkest warning on the effects of the new tariffs regime.
"The same is likely to be true of the economic effects, which will include higher inflation and slower growth."
The US president has said tariffs will boost US manufacturing and jobs, but stock markets have been spooked.
Powell said on Wednesday that impact of the Trump administration's changes to trade as well as immigration, fiscal policy and regulation on the US economy remained "highly uncertain".
US tariffs will make global trade shrink, says WTOUS tariffs will make global trade shrink, says WTO
All three main US stock markets suffered sharp falls on Wednesday. The Dow Jones fell 1.73%, while the S&P 500 and Nasdaq ended the day down 2.24% and 3.07% respectively. Ferris Bueller
But perhaps more concerning to the Trump administration than stocks and shares plunging in value was the rise in the number of investors dumping US government debt last week. Mr Powell said that despite the uncertainty and ructions in the markets, the "US economy is still in a solid position".
The rise in the effective interest rate the US government had to pay on its bonds is reported to have contributed to the president's decision to pause some higher tariffs.
Governments sell bonds - essentially IOUs - to borrow money from financial markets and in return they pay interest.
The US does not normally see high interest rates on its debt, as its bonds are viewed as a safe investment, but rates spiked sharply last week in a sign investors were losing confidence in the world's biggest economy. They have settled this week, but remain elevated.
Powell said on Wednesday that despite the uncertainty and ructions in the markets, the "US economy is still in a solid position".
For now, he said, the Fed could keep its benchmark interest rate steady "to wait for greater clarity before considering any adjustments".For now, he said, the Fed could keep its benchmark interest rate steady "to wait for greater clarity before considering any adjustments".
The Fed's benchmark interest rate is currently set in a range between 4.25% and 4.5%, where it has been since December following a series of rate cuts late last year.The Fed's benchmark interest rate is currently set in a range between 4.25% and 4.5%, where it has been since December following a series of rate cuts late last year.
The central bank has been attacked by Trump for holding rates unchanged. The president's campaign promises included calls for lower interest rates in order to bring relief to borrowers.
If tariffs push up inflation, as many economists expect, the Fed could decide to hold or even raise rates. Traders on Wednesday kept their bets it will continue to cut rates this year.If tariffs push up inflation, as many economists expect, the Fed could decide to hold or even raise rates. Traders on Wednesday kept their bets it will continue to cut rates this year.
But the Fed also has a mandate to maintain maximum employment as well as stable prices.But the Fed also has a mandate to maintain maximum employment as well as stable prices.
Should it be caught between rising inflation and a rising unemployment rate, Powell said "we would consider how far the economy is from each goal" and then look at "the potentially different time horizons" for getting prices under control and bringing the unemployment rate down. Should it be caught between rising inflation and a rising unemployment rate, Mr Powell said "we would consider how far the economy is from each goal" and then look at "the potentially different time horizons" for getting prices under control and bringing the unemployment rate down.
"As that great Chicagoan Ferris Bueller once noted, "life moves pretty fast", he added."As that great Chicagoan Ferris Bueller once noted, "life moves pretty fast", he added.