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In Chicago Appearance, Fed Chair Jerome Powell Warns of Tariff-Sparked Uncertainty and Asserts Agency’s Independence From Politics
Chair of the Board of Governors of the Federal Reserve System Jerome Powell takes the stage to speak during an event hosted by the Economic Club of Chicago, Wednesday, April 16, 2025, in Chicago. (AP Photo / Erin Hooley)
Federal Reserve Chairman Jerome Powell said the U.S. central bank won’t bend to any political pressure — and warned about the significant uncertainty that might be ahead given the whipsaw tariffs, immigration crackdowns and changes to fiscal policy and regulation in the early months of the second Trump administration.
Speaking at an Economic Club of Chicago luncheon Wednesday, Powell said that despite the instability, the nation’s economy is still in a “solid position,” in particular its labor market. But he acknowledged that while the rate of inflation is slowing, the sharp price increases consumers have faced over the last several years are still hitting Americans in their pocketbooks. And, he says, it’s too soon to tell how much President Donald Trump’s tariffs will raise the prices of goods.
“These policies are still evolving, and their effects on the economy remain highly uncertain,” Powell said. “The level of tariff increases announced so far is significantly larger than anticipated, and the same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
Powell, who assumed the chairmanship in 2018, joked that it’s been “an eventful seven years” on the job. While he said that the effects of tariffs are likely to cause at least short-term economic pain, he warned that it’s too soon to say just how much they might affect consumers and how long those effects will last.
Given the recent tsunami of layoffs and resignations of federal workers spearheaded by Elon Musk and his Department of Government Efficiency, Powell was asked about that wave’s potential effect on the labor market. While he told the luncheon crowd it wasn’t yet clear what the effect on the overall labor market might be, he added that the slashing of federal science funding is also starting to show up on the Fed’s radar.
Northwestern University, among others, is in line for a $790 million funding freeze.
“In cities that have a lot of universities and research hospitals, research institutions, we’re really hearing significant layoffs and significant impacts on employment,” he said. “I don’t know how much that will total up to – and of course in addition, cutting back on scientific research may have implications for economic growth, for productivity, for health, for all kinds of things.”
Those extraordinary moves to slash federal funding are part of the second Trump administration’s priorities to punish institutions over diversity programs and allegations of antisemitism, and to drastically cut back on the nation’s overall spending. But Powell said that the largest portions of the federal budget remain Medicare, Medicaid, Social Security and interest payments.
“All of domestic discretionary spending, which is essentially where 100% of the conversation is, is small as a percentage of federal spending, and is declining,” Powell said. “When people are focusing on cutting domestic spending, they’re not actually working on the problem.”
Looking to the future, Powell said he’s hopeful Congress can come up with some guardrails for cryptocurrency. And he added that he sees artificial intelligence as one of two or three key factors that could “dramatically change” the economy in the coming few years — but that we can’t yet predict whether the massively disruptive technology will boost human productivity or cause huge job losses.
He also reiterated the Fed’s commitment to remaining above the political fray, despite fears that Trump may try to weaponize the central bank — and the administration’s legal efforts to gain leverage to fire members of independent agencies.
“Our independence is a matter of law,” Powell said. “We’re not removable except for cause. We serve very long terms — seemingly endless terms,” he joked, to widespread laughter. Powell added that he doesn’t believe a Supreme Court case about presidential hiring and firing power extends to the Federal Reserve, though they’re keeping a close eye on the situation.
“We will only make our decisions based on our best thinking, based on our best analysis of the data,” Powell said. “We’re never going to be influenced by any political pressure. People can say whatever they want, that’s fine. That’s not a problem. But we will do what we do strictly without consideration of political or any other extraneous factors.”
Contact Nick Blumberg: [email protected] | (773) 509-5434 | @ndblumberg
