Powell warns of unseen tariff risk as hiring slows
Fed chair says tariffs may be absorbed through payroll costs rather than immediate price spikes; rate cut last week frames policy amid inflation concerns.
Federal Reserve Chair Jerome Powell warned Tuesday that American companies could be surprised by how tariffs affect hiring, with some firms delaying payroll growth rather than immediately raising prices, a dynamic that could influence the inflation outlook. 'Companies are holding off, they're not hiring, and that may be a way of passing off tariff costs,' Powell said at a luncheon.
Powell added that the tariff exposure has not yet produced the sharp price spikes some analysts warned about. Still, he stressed that the labor market remains inconsistent with the Fed's goals: 'The unemployment rate is low but has edged up,' and 'job gains have slowed, and the downside risks to employment have risen.' He said he has been watching jobs data closely after the central bank had spent years focusing on pricing and spending in its inflation fight. In April, Yale University's Budget Lab estimated that American households could face up to $4,400 a year in added costs from tariffs. So far, that scenario has not fully materialized: inflation eased to 2.4 percent in May before climbing to 2.9 percent in August, while consumer spending rose modestly last month.
Last Wednesday, the Fed trimmed its benchmark interest rate by a quarter percentage point, the first cut since December 2024. The decision followed August data that showed more Americans seeking unemployment benefits and higher prices at groceries, auto repairs, clothing retailers, and restaurants. Powell said the vote reflected a cautious move toward neutral policy as the Fed reassesses the path toward its 2 percent inflation goal.
On the policy side, Stephen Miran, a Trump-backed governor who was temporarily appointed to the Fed last week, warned that a slow pullback of rates could risk job losses; he was the only voting member to advocate a half-point cut. Austan Goolsbee, president of the Chicago Fed, told CNBC that the rate cut did not signal a shift in the inflation target: 'Heck no, we did not move the target. The target is 2 percent. We have to get inflation back to 2 percent, period.'
This is breaking news. Updates will follow as new data becomes available.