Powell looks to job market as tariff impact likely transitory

Federal Reserve Chair Jerome Powell on Tuesday said the Fed's balance of its dual mandate has shifted, with US tariffs likely to result in a one-time price adjustment and downside risk to unemployment having increased.

"The pass through (of tariffs) to consumers has been later and less than we expected," Powell told the Greater Providence Chamber of Commerce in Warwick, Rhode Island.

The Fed chair said the base case is now for a one time price increase from tariffs that will extend "well into next year."

That increase will then subside by the end of 2026 as inflation moderates closer to the Fed's 2% goal.

The chair's comments largely reflected those made after the Federal Open Market Committee cut rates last week, the first time since December.

The FOMC elected 11-1 to lower the federal funds rate by 25 basis points to the target range of 4.00%-4.25%.

Newly appointed Fed Governor Stephen Miran was the lone dissenter. The Trump-appointee had favored a 50bp reduction.

Defending the Fed's restrictive position this year, Powell said: "The responsible thing for us was to watch and wait."

While Powell's focus this year has remained on inflation, he said Tuesday that tariff costs are "not passing along to consumers", calling them "quite modest".

This, along with the "increased downside risk to unemployment" permits the Fed to shift its focus to employment, Powell explained, adding the Fed's "tight focus on inflation needs to moderate".

However, the Fed remains in a dual-risk environment, Powell warned, with inflation somewhat elevated and the possibility that companies may eventually pass on costs to consumers.

Amid this unique environment there is "no risk-free path" Powell said.

Positively, the US economy is "showing resilience" and "in the aggregate households are in good shape financially," the chair added, saying the US is not in a time of "elevated financial stability risks".

Other topics discussed include the importance of education, uncertainty about how AI will impact employment, and the limited role of the Fed in affecting economic change compared to Congress.