Fed’s Tightrope: Powell Warns on Inflation Risks as CPI Cools and Job Growth Surges

Updated on 18 April 2025

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As the U.S. economy digests a new wave of trade tensions and political uncertainty, the latest remarks from the Federal Reserve chair have added fresh complexity to the outlook for interest rates. Speaking on April 16, he issued a stark warning: the newly imposed import tariffs could rekindle inflation, even as the latest CPI data shows signs of easing.

This development comes at a crucial moment. Investors and policymakers are still weighing the implications of March’s softer inflation print and surprisingly strong labor market data. The question now: Can the Fed afford to pivot toward rate cuts—or has that window just closed?

Tariff Alert: Inflation May Not Be Done Yet

In a public appearance on April 16, the Fed chief highlighted concerns that the new 125% tariffs on select imports could lead to “persistent price pressures.” He emphasized the importance of maintaining price stability and warned that inflation could rise again if supply chain costs are passed on to consumers.

This message contrasts with recent hopes for monetary easing and reinforces the Fed’s stance of policy caution in the face of external shocks.

March CPI: Cooling Inflation May Be Temporary

The latest inflation figures, released earlier this month, showed:

• Headline CPI (YoY): 2.4% in March (down from 2.8%)

• Monthly CPI (MoM): -0.1%, the first negative monthly reading in over a year

• Core CPI (YoY): 2.8%, the slowest pace since 2021

  
  

While these numbers suggest a disinflation trend, many analysts believe it could be short-lived. The full effects of the tariffs—especially on consumer goods—have yet to show up in price data, meaning future CPI readings could reverse course.

Strong Job Growth Adds to Fed’s Dilemma

March’s employment report delivered stronger-than-expected results:

• Jobs Added: 228,000

• Unemployment Rate: 4.2%

• Average Hourly Earnings: +0.3%, reaching $36.00/hour

Though the data reflects a resilient labor market, much of the job growth stemmed from part-time and service-sector roles. Still, the solid pace of hiring gives the Fed little urgency to ease policy—especially with inflation risks potentially re-emerging.

The Fed’s Balancing Act Continues

The central bank now faces four key forces shaping its policy direction:

1. Tariffs – Raising inflation risks through higher import costs

2. CPI Trends – Temporary cooling, but volatility ahead

3. Labor Market – Steady, but job quality mixed

4. Political Pressure – Public criticism challenging Fed independence

   
   

While markets previously expected a rate cut by mid-year, the current narrative suggests the Fed will maintain its wait-and-see stance until price stability is assured.

Bottom Line

The Fed is walking a policy tightrope—caught between cooling inflation, strong employment, and new inflationary shocks from tariffs. Although March data looked promising, policymakers are unlikely to rush into rate cuts unless new data reinforces a clear downtrend in prices.

With the next FOMC meeting approaching in May, all eyes will be on how the central bank balances growth, inflation, and political headwinds.