Tariffs or oil – what’s really keeping inflation high, Powell asks?
Synopsis
Jerome Powell flagged tariffs and energy prices as key drivers of persistent inflation, saying the Fed is closely watching how these pressures evolve.
Federal Reserve Chair Jerome Powell said tariffs and rising energy prices are keeping inflation elevated, warning that uncertainty around both factors makes it difficult for the central bank to assess how quickly price pressures will ease.
Key highlights
- Jerome Powell flags tariffs as major inflation driver
- Energy price surge from Iran war adds pressure
- Fed unsure if it can “look through” energy shock
- Core inflation remains above 2% target
- Policy path depends on inflation progress
Tariffs a key driver of persistent inflation
Powell said a major portion of current inflation is being driven by tariffs introduced under President Donald Trump.
Inflation, measured by the Fed’s preferred gauge, remains around 3%, with Powell estimating that “between a half and three-quarters” of that is linked to tariffs.
The central bank expects the impact of tariffs to be a one-time increase in prices rather than a sustained driver of inflation, though uncertainty remains over future trade policy.
Uncertainty over how long tariff impact lasts
Powell cautioned that it is difficult to predict how long tariff effects will persist in the economy.
“I think we have to be humble about knowing how long it will take for tariffs to go all the way through the economy,” he said, noting that the post-pandemic inflation surge took years to subside.
While some tariffs were struck down by the US Supreme Court, the administration is planning new levies targeting multiple trading partners.
Energy shock adds new inflation risk
In addition to tariffs, Powell highlighted rising energy prices linked to the Iran war as another major concern.
He said the Fed is closely monitoring how increases in diesel, jet fuel and other petroleum-based costs feed into broader inflation.
“We just don't know how big this will be and how long it lasts,” Powell said of the energy price shock.
Fed cautious on policy response
Asked whether higher oil prices could trigger a rate hike, Powell declined to give a specific threshold, saying only that the Fed is prepared to act if needed.
He added that whether the central bank looks through energy-driven inflation will depend on progress in reducing core inflation.
Core inflation remains key focus
Powell stressed that bringing down core inflation remains the Fed’s primary objective.
He said the question of ignoring energy-driven price spikes does not arise until there is clear progress in lowering underlying inflation pressures.
So far, that progress has been limited, keeping the Fed cautious in its policy outlook.
What next?
The Fed’s next moves will depend on how tariff effects fade and whether energy prices continue to rise.
With both factors uncertain, policymakers are likely to remain data-dependent, watching closely for signs of sustained improvement in inflation.
FAQs
Q1: What did Powell say about inflation?
He said tariffs and rising energy prices are key reasons inflation remains elevated.
Q2: How much inflation is linked to tariffs?
Powell estimated that 50% to 75% of current inflation is driven by tariffs.
Q3: Is the Fed concerned about oil prices?
Yes, the Fed is closely monitoring how rising energy costs affect overall inflation.
Q4: Will the Fed change interest rates soon?
That depends on progress in reducing core inflation and how long current price pressures persist.
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I write about markets, money, and the macro forces that move them. Passionate about turning complex economic trends into sharp, easy-to-understand stories. Off the clock, it’s hip hop, rock, reggae -- and a mix of cricket and basketball.
