Matt Grudnoff

Senior Economist

Federal Reserve chair Jerome Powell has spoken overnight. The Federal Reserve is the US central bank. Powell has come out and said that they’re worried that the Trump tariffs will push up inflation and slow economic growth (which in turn pushes up unemployment).

This combination of events, high inflation and high unemployment, is very tricky for central banks. When inflation is high, a central bank will increase interest rates to slow the economy and reduce inflation. When unemployment is high, they cut interest rates to stimulate economic growth and lower unemployment.

But what do they do when both inflation and unemployment are high?

The Federal Reserve chair said overnight that they were going to make no change to interest rates and wait and see what happens as more economic data comes in.

The Fed is hoping that Trump will pull back from his policy on tariffs, otherwise they will have to make some difficult decisions.