Federal Reserve chief Jerome Powell last night warned of ‘turmoil’ created by Donald Trump as he forecast lower growth and higher inflation.
America’s central bank now expects the economy to expand by 1.7 per cent this year, down from a previous forecast of 2.1 per cent. And it sees inflation for 2025 at 2.7 per cent, revised up from 2.5 per cent.
It comes after Trump imposed swingeing trade tariffs on its major trading partners China, Mexico and Canada – slapping a tax on goods coming into the US from those countries.
Of the rise in the outlook for inflation, Powell said ‘clearly . . . a good part of it is coming from tariffs’.
Asked about the risks that – as some fear – the US could be plunged into recession, he said: ‘We don’t make such a forecast.’
He said that for many experts, the risk ‘has moved up but it’s not high’.
Slowdown: America’s central bank, led by Jerome Powell (pictured) expects the economy to expand by 1.7% this year, down from a previous forecast of 2.1%
Powell added: ‘The economy seems to be healthy. We understand that sentiment is quite negative at this time.
‘That probably has to do with the turmoil at the beginning of an administration that is making big changes in areas of policy, and that’s probably part of it.’
But Powell added that the ‘underlying unhappiness’ felt by consumers was more to do with price levels that have already been pushed up by previous inflation.
He was speaking as the Fed left rates on hold in a 4.25 per cent-4.5 per cent range – again resisting Trump’s demands for rates to be cut. And Powell signalled it was in no hurry to cut further.
The Fed is closely watching the new administration’s implementation of trade, immigration, tax and spending, and regulation, Powell indicated, but said the outcome remained uncertain.
Trump’s trade wars have already created major disruption in US stock markets, which have fallen sharply from highs reached after he was elected.
And investors who had hoped the president would be restrained by the markets have been alarmed to see him indicate that he accepts there will be ‘a little disturbance’ as a result of his policies.
Omair Sharif of Inflation Insights, said: ‘The Fed is as lost in the wilderness as the rest of us trying to decipher the continual shifts in economic policy from 1600 Pennsylvania Avenue [the White House].
‘Beyond the cut to median growth this year and the boost to median inflation, the most telling aspect of the (projections) is the shift higher in uncertainty.’
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