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Federal Reserve Chair Jerome Powell has been tight-lipped about his interactions with President Donald Trump and the policies of the Trump administration. But that changed on Friday when Powell spoke publicly about the president’s global tariffs that were announced this week.
At a conference in Arlington, Virginia, Powell warned the audience that tariffs could fuel rising inflation and slower economic growth. The Fed has spent much of the past three years combating higher prices through tighter monetary policy and higher benchmark interest rates.
Many market observers have been critical of the Fed’s restrictive policies — especially those in the housing industry who’ve seen business decimated by a lack of homebuyer demand.
But annualized inflation has been reduced from a peak of 9.1% in June 2022 to 2.8% as of February. The employment market also remains strong and the U.S. has yet to plunge into a recession as many have predicted.
“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” Powell said Friday, according to reporting by The New York Times. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
Some forecasts say that tariffs will push inflation up by a full percentage point over the course of this year. Optimism is declining among corporate executives and consumers alike, who believe that economic output and employment growth will take a significant hit.
The early impacts of the tariffs are already being felt across the financial markets. After China retaliated with a 34% reciprocal tariff on U.S. imports, the Dow Jones Industrial Average fell by nearly 5% on Friday, its largest decline since June 2020 at the height of the COVID-19 pandemic.
The housing industry could benefit from the tariff news, at least in the short term. Mortgage rates have already moved lower as investors move their money out of stocks and into bonds, pushing Treasury yields lower.
“As a result of this morning’s fluctuations, mortgage rates have reached a new year-to-date low,” HousingWire Lead Analyst Logan Mohtashami wrote Friday. “However, a single announcement about a resolution to the trade war could cause bond yields, mortgage rates and stock prices to rise significantly.”
Trump, who nominated Powell to lead the Fed during his first term in the White House, has been an outspoken critic of the chairman in the past. On the campaign trail last year, Trump said that if elected, he would seek to exert more control over the Federal Reserve.
On Friday, the president used his platform on Truth Social to push for interest rate cuts, telling Powell to “STOP PLAYING POLITICS!”
The president has previously denied rumors that he would remove Powell, while the chairman has said he would ignore attempts to fire him.
Mark Calabria, the former director of the Federal Housing Finance Agency (FHFA) under Trump — who has rejoined the administration in an interim role at the Consumer Financial Protection Bureau (CFPB) — told HousingWire last year that he didn’t expect to see wholesale policy changed at the Fed due to Trump’s influence.
“The Fed operates within the government,” Calabria said. “The Fed coordinates with administrations. The argument that Trump is somehow bringing a threat to the Fed’s independence is grossly exaggerated, if not completely false. I don’t have a lot of sympathy for that argument.”
